Variable Rate Mortgage

A variable rate mortgage is one with an interest rate that is not automatically set in stone. While a traditional mortgage will have a defined rate over the term of the loan, the variable rate mortgage is indexed to some external indicator. For instance, it might be indexed to the rate paid by the federal government on Treasury bills, or it might be indexed to any number of bank rates. When those rates go up or down, the rate on a person’s mortgage will go up or down accordingly. A variable rate mortgage is more of a financial gamble than a traditional mortgage. It can be a good investment for people who believe that interest rates are going down in the coming years. Many people are critical of these loans because they make it difficult for homeowners to do a lot of legitimate budgeting or financial planning for the future.