Variable Interest Rate

Mortgage interest rates are either fixed or variable. Variable interest rates fluctuate based on several external factors, while fixed rates stay the same for the life of the loan regardless of external factors. A variable interest rate can increase or decrease multiple times throughout the life of the loan. Factors that may effect variable interest rates include a change in the rate in which banks are paid for certificates of deposits as well as Treasury bills. Other factors include worldwide economic conditions. For example, if there were a great catastrophe and the economy started to decline, variable mortgage interest rates may fluctuate as well. If a borrower chooses a variable interest rate loan, they may save money when rates are low. However, there is always a risk of a sudden increase in interest rates, which may cost the borrower money in the end.