Buzz
The classic debate: fixed vs. variable rate. Fixed rates allow you to lock in a stable price, while variable rates may offer a better deal, though it can fluctuate. Fixed rates are considered safer, but if you’re willing to take a chance, here’s what you need to consider before agreeing to a variable rate loan.
At CommonBond, writer Kaitlin Butler discusses the comparison between fixed and variable rate loans. However, the concept of fixed versus variable rates extends beyond loans. Your electric bill, credit card interest, and even cable subscriptions may come with fixed or variable rate options. Butler offers useful advice that could be applied in any situation involving fixed vs. variable choices. She highlights three critical questions to ask a lender or provider before agreeing to a variable rate plan:
1) Which market benchmark do you use?
Once you have that information, check reliable sources like the
Wall Street Journal's Data Center
or
Bankrate
to analyze its past performance and current trends, and to gather expert predictions on its future behavior.
2) How frequently can the rate change?
For example, will your rate adjust every two weeks, month, or year depending on market fluctuations? Be sure you won’t face unexpected changes when it's time to make payments.
3) Is there a cap on the rate?
This is a critical safeguard for you, ensuring that if the market surges unexpectedly, your rate won’t skyrocket beyond a certain limit. (It’s wise to avoid lenders who don’t provide a maximum rate cap.)
It’s a decision that requires careful consideration, but these questions will help guide your choices. She also provides insights into how variable rates are calculated, so be sure to read the full article for more details.
Photo by Daniel Foster.
