What’s the difference between a fixed and variable rate?

When you apply for a mortgage, lenders may offer you options with either fixed or variable interest rates.

With a fixed interest rate, you will know in advance the amount of interest you will have to pay (assuming you don’t make any prepayments), and therefore how much of the original loan amount will be paid off during the term. The interest rate is set or “fixed” when you apply for a mortgage. This interest rate remains the same for the entire term.

With a variable interest rate, your payment amount changes if the interest rate changes. A set amount of each payment is applied to the principal, and the interest portion fluctuates depending on changes to the interest rate. If the interest rate goes down, your payments will decrease. If the interest rate rises, your payments also increase.