Which interest rate type is stable and does not change over the life of the loan?

A fixed interest rate is characterized by its stability, meaning it remains constant throughout the entire term of the loan. This type of rate assures borrowers that their monthly payments will not vary, allowing for better financial planning and budgeting. It is particularly advantageous in environments where interest rates might rise, as borrowers lock in a rate that will not change, regardless of broader financial conditions.

In contrast, a variable interest rate is subject to fluctuations based on market conditions, which means that payments can increase or decrease over time. This type creates uncertainty for borrowers, who may face higher payments if interest rates rise.

The compound interest rate refers to how interest is calculated on both the initial principal and the accumulated interest from previous periods. This term does not describe a stable or unstable rate; rather, it defines a method of interest calculation.

A floating interest rate is similar to a variable rate, as it is usually tied to an underlying benchmark that changes over time, leading to potential increases and decreases in the interest rate applied to the loan.

Thus, the fixed interest rate provides borrowers with consistency and predictability, making it the ideal choice for those who prefer to avoid the risk associated with changing interest rates throughout the life of a loan.