Fixed-rate loans are loans with an interest rate that remains the same for the life of the loan. This means that the monthly payments will remain the same, regardless of changes in the market. On the other hand, adjustable-rate loans have an interest rate that can change over time, depending on the market. This means that the monthly payments can increase or decrease depending on the market conditions.
According to The Benefits of Fixed-Rate Loans, in a healthy economic environment, variable-rate loans usually cost less to borrowers over the long term. However, due to the Federal Reserve increasing the federal funds rate, variable-rate loans are not expected to go down anytime soon. Additionally, due to the high demand, the cost of buying caps also increases during uncertain times. Therefore, it is without a doubt that fixed-rate loans are the best financing option when interest rates are predicted to rise significantly.
According to 8 Reasons Why You Should Consider an Agency Loan, agency loans are available as both fixed-rate and adjustable-rate loans. This means you can choose the type of loan that best suits your needs. If you opt for a fixed-rate agency loan, the interest rate will remain the same for the life of the mortgage — even if rates begin to rise astronomically. This provides peace of mind and stability, as you know your monthly payments will remain the same through the loan's term.