Rate Types
Click on the accordions below to rate type information:
Fixed Rate
A rate that does not vary with market conditions and remains constant over the loan term. The borrower makes the same payment each month.
DeleteVariable Rate
A rate that can change over the loan term. The rate is tied to an index, such as the prime rate or a U.S. Treasury bill rate, which represents the base rate and an additional fixed percentage or spready (Index Rate + Fixed Rate = Variable Rate).
Example: If the prime rate is 3.75% and the bank adds 2%, then the variable rate would be 5.75%.
DeleteRate Factors
Banks consider several factors when setting rates and balancing fixed and variable rate offerings. Rate factors include:
- Bank's desired portfolio
- Overall business strategy, including bank's costs, profit objectives and financial condition.
- Competitors and market environment