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An adjustable-rate loan changes with market interest rates, offering potential initial lower rates compared to fixed-rate loans.
An adjustable-rate loan changes over time depending on the market interest rates. Unlike a fixed-rate loan where the interest rate remains constant throughout the loan term, an adjustable-rate loan's interest rate fluctuates with the market conditions.
For example, an adjustable-rate mortgage (ARM) is a type of loan where the interest rate can vary based on the rate of inflation, providing borrowers with the potential for lower initial interest rates compared to fixed-rate loans.
Loans with built-in inflation adjustments are common in adjustable-rate loans, which means that if inflation rates rise or fall, the interest rates on the loan would adjust accordingly.
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