The benefit of a fixed-rate interest loan is that you know how much you will pay every month throughout the life of the loan. For some homeowners, knowing that the payment will never change — no matter how much they earn each month — is worth paying for.

A variable rate loan means that the interest rate will fluctuate over time. Sometimes it will go down and other times it will go up. If you're comfortable with not knowing exactly what your payment will be, but knowing there are some safeguards in place with respect to how much the rate can rise or fall in a single year, then your increased risk tolerance is rewarded with a lower interest rate.