Variable Rate Mortgage

Variable Rate Mortgage

A type of home loan in which the interest rate is not fixed. The two most common types of mortgages in the United States are fixed rate and variable rate (also called adjustable rate). With a fixed rate mortgage, the interest rate does not change for the entire loan term.

Borrowers know with certainty what the interest and principal payment on their mortgage will be each month for as long as they carry the mortgage. With a variable rate mortgage, the interest rate adjusts periodically. Monthly principal and interest payments change according to a predetermined schedule throughout the life of the loan.

Variable rate mortgages are attractive because they usually have a low interest rate for an initial period of a few years, and that initial rate is usually less than the rate on a fixed rate mortgage. This interest-rate difference can yield significant savings for borrowers at the beginning of the mortgage term. However, once the introductory period ends, the rate will move up or down as market interest rates change. Interest rate increases can be problematic for borrowers with variable rate mortgages. In a worst-case scenario, the mortgage payments can become so unaffordable that the homeowner defaults and eventually loses the home to foreclosure. In general, the more money the homeowner has borrowed, the more a change in interest rate will affect the monthly payment amount.

Investment dictionary. . 2012.

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Look at other dictionaries:

  • variable rate mortgage — UK US noun [C] (also adjustable rate mortgage) FINANCE, PROPERTY ► a loan for buying a house on which the interest rate can change over time: »One building society is currently offering a five year variable rate mortgage, capped at 5.75% …   Financial and business terms

  • variable rate mortgage — n. a mortgage involving a loan with a variable interest rate over the period of the loan * * * …   Universalium

  • variable rate mortgage — n. a mortgage involving a loan with a variable interest rate over the period of the loan …   English World dictionary

  • Variable-rate mortgage — A variable rate mortgage or floating rate mortgage is a mortgage loan where the interest rate varies to reflect market conditions. The interest rate will normally vary with changes to the base rate of the central bank and reflects changing costs… …   Wikipedia

  • variable rate mortgage — noun : adjustable rate mortgage herein * * * variable rate mortgage, U.S. a mortgage on which the interest rate rises or falls with the interest rate in the money market: »Variable rate mortgages…[fluctuate], depending on such factors as the long …   Useful english dictionary

  • variable-rate mortgage — A less common name for an adjustable rate mortgage ( ARM). American Banker Glossary * * * variable rate mortgage variable rate mortgage ➔ mortgage1 …   Financial and business terms

  • variable rate mortgage — noun Date: 1975 adjustable rate mortgage …   New Collegiate Dictionary

  • variable rate mortgage — mortgage with a interest rate that can be changed during the term of the loan …   English contemporary dictionary

  • variable-rate mortgage — A mortgage in which the rate of interest is varied from time to time by the mortgagee (lender) according to market conditions …   Big dictionary of business and management

  • variable-rate mortgage — See mortgage …   Black's law dictionary

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