April 22, 2024

Fixed-Rate Vs. Variable-Rate Loans | Quicken Loans

Fixed-Rate Vs. Variable-Rate Loan FAQs

Here are the answers to some frequently asked questions from borrowers comparing fixed-rate and variable-rate loans.

When should I get a variable-rate loan?

It’s advisable to get a variable-rate loan if you want a lower payment than a fixed-rate loan and plan on moving out of the home or refinancing before the rate adjusts. Variable-rate loans offer lower interest rates and monthly payments during the introductory period, helping borrowers afford the debt. These loans are a bit more complicated, so it’s important that you understand how they work before committing to this type of loan.

What if I have a variable-rate loan and interest rates are going up?

Refinancing to get a fixed-rate loan is the path out of rising interest rates. If your variable-rate loan’s interest rate is increasing, it’s crucial to keep up on your loan payments while you seek a refinance. Remember, getting a refinance means qualifying for another loan, and delinquency on your current loan will hurt your credit score.

What if I have a fixed-rate loan and interest rates are going down?

If interest rates go down after you take out a fixed-rate loan, your loan payment won’t change. If the loan in question is a mortgage, you could refinance to take advantage of the lower rates. However, you should calculate whether the decrease in your monthly payment will offset the refinance loan’s closing costs. If the loan in question isn’t a mortgage, you could consolidate your debt under a new fixed-rate loan to receive a better interest rate.

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