Question

what are examples of when a fixed rate loan is preferred and when an adjustable rate...

what are examples of when a fixed rate loan is preferred and when an adjustable rate loan migh be preferred?

Homework Answers

Answer #1

There are phases when the central bank reduces or increases the rate.

When the economy is struggling, to trigger the investments in the economy, the central banks reduce the rates. This process can be continuous. When the economy is blooming or inflation is increasing, central bank may increase or keep the rates high.

If you are taking a loan, you would prefer less rates. Thus, when the rates are increasing or can increase in the future, you will prefer the fixed rate loan. As you will be paying the same interest even at the higher rate.

When the rates are going down or may go down in the future, you would want to take advantage of that. Thus to p[ay lesser interest in the future, you prefer adjustable loan rates.

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