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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let me break it down for you! Imagine you’re borrowing money to buy something, like a house. Now, a “variable loan” is like a special kind of loan where the interest rate, which is the extra money you pay back on top of what you borrowed, can change over time. It’s like the interest rate isn’t always the same; it can go up or down.
People might consider a variable loan because at first, the interest rate could be lower than a “fixed loan,” where the interest rate stays the same. This can make the monthly payments lower and more affordable in the beginning. However, the tricky part is that the interest rate can go up later, which could make your payments higher.
So, some people might choose a variable loan if they think the interest rates will stay low for a while or if they plan to sell the house before the rates go up. But it’s a bit of a gamble because the rates can change, and that’s why some folks prefer a fixed loan with a steady interest rate for the whole time.
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