Fixed-rate

• Keeps the same interest rate for the life of the loan.

• Rate is normally higher than an adjustable-rate loan because you pay a premium

for avoiding the risk of future rate increases.

• Long-term fixed-rate loans are less typical in commercial mortgages.

Adjustable-rate

• Interest rate fluctuates up or down at periodic intervals (i.e. every month, every 6

months, or once a year) depending on the terms.

• Rates usually start lower than a fixed-rate loan because you, not the lender, assume

the risk of fluctuating interest rates.

• If interest rates rise, the rate can increase significantly (or may decrease if interest

rates fall).

• Rates rise and fall in tandem with an index (i.e. Prime or LIBOR).

Hybrid

• Starts with a fixed-rate, but becomes adjustable after a specified time.

• A 7/1 hybrid will have a fixed-rate for the first seven years. The rate will adjust up or

down every year, after the first seven years.

• The longer the fixed period, the higher the initial rate. For example, a mortgage with

7/1 terms will have a higher initial rate than a loan with 2/1 terms.

• In general, during the fixed period hybrid loan rates are:

    • Lower than 30-year fixed-rate mortgages to compensate you for assuming

the risk of the upcoming rate variability.

    • Higher than adjustable-rate loans because you are paying a premium for the

added security of the fixed-rate.