The main difference between a fixed-rate and adjustable-rate amortization is that with a fixed-rate loan, the interest rate remains the same throughout the life of the loan. This means that the monthly payments will remain the same, and the borrower will not be exposed to sudden changes in the economy. With an adjustable-rate loan, the interest rate can change over time, which can lead to higher monthly payments.
In a healthy economic environment — where interest rates are expected to decrease — variable-rate loans usually cost less to borrowers over the long term, however, this is not the case now. In an attempt to curb inflation, the Federal Reserve has been steadily and rapidly increasing the federal funds rate, which has had significant impacts on those with adjustable-rate loans — and on anyone looking to refinance. Therefore, it is without a doubt that fixed-rate loans are the best financing option when interest rates are predicted to rise significantly.