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Mortgage
A fixed rate does not change over the life of the loan. A variable rate, also known as an adjustable or floating rate, is adjusted periodically and is usually based on a standard market rate outside the control of the bank, such as the prime interest rate. These rates often have a specified floor and/or ceiling, called a cap or a collar, which limit the adjustment.
Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation’s central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.