What Is a Variable-Rate Mortgage?

The variable-rate mortgage is one of the most popular types of mortgages in the industry today. Here are the basics of the variable-rate mortgage. 

Variable-Rate Mortgage

The variable-rate mortgage allows the interest rate to fluctuate on a regular basis. The interest rate of the loan is going to be tied to a specific financial index. As the index moves up and down, the interest rate on the loan will move up and down. Typically, with a variable-rate mortgage, there will be a specific period for which the interest rate is fixed, and then it will change to a variable rate.

Implications

If you are considering utilizing a variable-rate mortgage, you will want to consider the implications first. With this type of mortgage, your payment could increase substantially. Many individuals who have utilized this type of loan have seen their payment double over the life of the loan. Many people cannot afford such a drastic swing in their mortgage payment.

However, if you plan on being in a property for a short amount of time, you may benefit because this type of loan can give you a lower fixed interest rate at the beginning of the loan.

blog comments powered by Disqus