Often times you may hear someone talking about the new home they just bought and being very happy that they were able to get a good fixed rate mortgage.  Obviously they mean that the interest rate they pay on their loan will not change over time as the Fed raises or lowers interest rates.  It is, as they say, fixed in place.  Is a fixed rate loan always beneficial, however?  It all depends on a number of factors.

The aspect of a fixed rate mortgage or other fixed rate loan is the fact that the rate is essentially locked in place.  If interest rates go up, the bank can not change the rate that you’re paying.  Of course this also means that the rate can not go down either.  There have been many people that were exuberant about obtaining their fixed rate loan one year, only to find a sharp drop in rates occurring a year later, basically costing them thousands over the life of the loan.

Of course in an inflation ridden economy like ours, interest rates seldom drop very much and are usually going up.  Because of this a fixed rate loan is usually the safest bet.

The opposite of the fixed rate loan, of course, is a variable rate loan.  With a variable rate loan the interest rate can rise and fall several times over the life of the loan, usually when the Fed mandates a change in interest rates.  While these can be beneficial when interest rates drop, they drop infrequently enough to make fixed rate loans the choice that most people seek.

While people usually toss the terms fixed rate and variable rate around when talking about home mortgages, they can apply to many different areas of lending.  One other place where they will be heard frequently is in relation to credit card accounts.  To attract customers, several credit card companies will offer fixed rate cards.  If you obtain one of these, be sure to read the fine print carefully because there are often stipulations and requirements that must be met in order to maintain the fixed rate.