Most governments don't receive loans with adjustable rates, but they plan their budgets with the expectation that they can refinance their debt once their loans mature. Most governments have regular debt maturities that they must meet, and they would be in big trouble if they can't refinance those loans.
It is also important to separate local governments from the sovereign federal government. The federal government is allowed to print money to cover its debts, which dramatically reduces the concern among creditors that it may default. Local governments have no such option, however; they can only address their deficit by reducing spending or raising taxes. Both options are politically unpopular (hence why most politicians do nothing and pass the buck to their successors), and may be counterproductive because the local citizens can just pack up and move if taxes are increased, or if public services deteriorate.
Edit: I forgot to mention that the most attractive way to raise government revenue is to actually attract more productive citizens to move there and increase the tax base (aka how California managed to dig itself out of its immediate financial hole). However, this is obviously very difficult to achieve in practice.
Yes, that is true. Governments typically don't pay off the principal on their loan - more specifically, as soon as the loan matures, they take out another loan.
This is not a problem if you've got some 30-year bonds maturing (As a dollar borrowed 30 years ago is trivial to pay off today), but this is a big problem if most of your debt is in the form of rolling, 1-year, or 3-year bonds.
This is still quite different from a mortgage you need to renegotiate every 5 years, or where the interest rate is pegged to prime + X%.
It is also important to separate local governments from the sovereign federal government. The federal government is allowed to print money to cover its debts, which dramatically reduces the concern among creditors that it may default. Local governments have no such option, however; they can only address their deficit by reducing spending or raising taxes. Both options are politically unpopular (hence why most politicians do nothing and pass the buck to their successors), and may be counterproductive because the local citizens can just pack up and move if taxes are increased, or if public services deteriorate.
Edit: I forgot to mention that the most attractive way to raise government revenue is to actually attract more productive citizens to move there and increase the tax base (aka how California managed to dig itself out of its immediate financial hole). However, this is obviously very difficult to achieve in practice.