QandAs: Loans

What is a Variable Rate Mortgage?

Answer:
With a variable rate mortgage loan, the interest

rate on the loan varies throughout the life of the loan. Market conditions influence interest rates, and rates can fluctuate on a monthly basis. Also referred to as an adjustable rate mortgage, the majority of variable rate mortgages offer an initial fixed rate period, wherein the interest rate is unchanged for a specific term, usually three, four, or five years.

Once the fixed rate period ends, the variable rate will adjust. Adjustments occur monthly or annually depending on the type of loan.

Variable rate mortgages are beneficial because borrowers can usually qualify for a higher loan balance, and these loans are less expensive than a fixed rate mortgage. Of course, there is a downside to variable rate mortgages.

Rate adjustments can affect borrowers in a big way. A financial index controls mortgage interest rates. If the index falls, the rate on a variable mortgage will decrease. On the other hand, if the index rises, the rate on a variable mortgage will increase. With many types of variable mortgages, monthly payments fluctuate with every rate adjustment. Variable rate mortgages are ideal for borrowers who can afford a rate increase, and for borrowers who think that interest rates will remain low.


	more Q&A sessions like this
	What are the different types of Mortgages? What is a Rate Adjustment? What is the difference between a Home Equity Line of Credit and Second Mortgage?