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What is the difference between a fixed rate and an adjustable rate loan?

April 26, 2017Adjustable difference fixed loan rate

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What is the difference between a fixed rate and an adjustable rate loan?

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A fixed rate loan has an interest rate and monthly principal and interest payment that will not change for the life of the loan. An adjustable rate loan has an interest rate that is linked to an index which changes over time. This fluctuation in rates causes the interest rate and monthly payment on the adjustable rate loan to change. For this reason, adjustable rate loans carry more risk due to the possibility that your monthly payment could increase. Normally, you can get a little better rate on an adjustable rate loan than you would on a fixed rate, due to the fact that you are assuming some of the risk that rates might go up. To avoid worry about future rising interest rates, some borrowers choose fixed rate loans for protection.