title. i understand the difference between variable and fixed as definitions however with loans, ‘variable’ doesn’t quite register to me..
why on earth would someone consider that type of loan with a purchase of let’s say, a house?
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Risk is a commodity like any other, and you pay for it. If I take a loan out at a fixed interest rate, the bank is accepting the risk that interest rates go up. They charge a premium for that. If I take a floating rate mortgage, they do not.
Short version: over the length of the mortgage – the floating rate mortgage will almost always be cheaper than a fixed rate mortgage. When interest rates spike, it will be higher.
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