What is the difference between a fixed and adjustable rate? which one is better?

Answer 1

a fixed rate is just that-fixed, that is it is constant over the life of a loan. an adjustable rate is that- adjustable, usually up, but sometimes down depending on the waqy it is computed and how often, over the life of the loan.
a fixed rate is usually better since it isn't affected by fluctuations in the interest rates over the life of the loan.
if you have a 5% loan at a fixed rate for 30 years it means you only pay 5% on the loan for 30 years.
a variable rate is adjusted eothewr up or down based on the interest rate evrery five years (usually). if the interest rate goes up to 20%, your new rate is 20% from years 5-10, and if it is 3% it drops to somewhat less than what yoiu stareted, but not 3%. instaed it may go to 4% for years 5-10 and then it is adjusted after the 10th year to the new rate which may be up to 14% so you would now have a rate of 14% for years 10-15. such fluctuations may limit the amoun t of upward and downward of what you may actually pay, but it would probably NOT be the same for any five year period where a fixed rate would never change.
dependimng on your particular case, the adjustable rate may be good at first, but over time the fixed rate would be best, though if it starts high, refinancing at a lower fixed rate is usually what people try to do and they also go with a fixed rate from an adjustable rate when the fixed drops far enough to make it worth the effort and expense of refinancing the loan.

Answer 2

I am guessing you mean for a Mortgage?

A fixed rate is just that - not changing - So if it is a mortgage and the interest rate is fixed for the life of the loan the payment will be the same each month for the life of the loan.

A variable rate changes either up or down depending upon an how an index changes usually the pime rate index - this index reflects the interest rate that banks charge each other. The good thing about a variable rate is that if interest rates fall during the life of the loan your payments will go down. However, if the interest rates (or index it is based upon) goes up than your payment goes up. Most variable rates have a fixed max that they can go up.

IN either case make sure you are dealing with someone that will explain it to you so that you can understand it.

Also lots of info on the net.

Answer 3

With an adjustable rate loan, the interest rate will change based on some interest rate index. A fixed rate will have the same rate of interest for the entire loan. Generally a fixed rate provides more stability for the borrower. There is a higher interest rate for having the stability of a fixed rate loan.

For mortgages the fixed rates are only slightly higher than the adjustable loans, and interest rates are at historically low levels. A fixed rate loan is very attractive in the current market.

Answer 4

I would always go for the Fixed Rate. If your payments are based on the adjustable rate, your payments can vary greatly depending on the current interest rate. This is something to keep in mind if you are on a tight budget. If given the choice, always go for the sure thing.

Answer 5

For example, residential mortgages can be obtained with a fixed interest rate, which is static and can't change for the duration of the mortgage agreement, or with a floating interest rate, which changes periodically with the market. In the case of floating interest rates in mortgages, and most other floating rate agreements, the prime lending rate is used as a basis for the floating rate, with the agreement stating that the interest rate charged to the borrower is the prime interest rate plus a certain spread.

Answer 6

Lots of info, but no real world experience.

Heres real world.

1> Most people tend to live in a house for 5 years before they move.

So here's the question for you.

If you are the norm, and move in 5 years, get a variable.
If you intend to hold the house,then go fixed.

Here's why.

With fixed rate loan, you will pay more in interest
within that 5 years.

A variable you will pay less.

Over the life of a 30 year loan,fixed is better.

Bottom line.

If you are going to stay, go fixed,if you aren't, go variable.

Answer 7

Fixed rate never changes and an ajustable changes baced on prime.

And depends on your needs.

Check out bankrate.com