A mortgage with a variable rate simply means that the interest rate you pay on the loan varies depending on changing market conditions. For example, if national interest rates go up, your monthly mortgage payment increases. However, if the rates go down, your mortgage payment drops also. Usually the initial interest rate on variable rate mortgages is significantly lower than you would receive at the same time for a traditional fixed-rate loan, so you pay less interest in the beginning years of your loan. As a result, variable rate mortgages, also known as an adjustable rate mortgages, can be more affordable up front. Keep in mind that if you choose a mortgage with a variable rate, you'll need to be sure you can handle the monthly payment if the interest rate rises to its maximum. As a result, this type of loan is generally recommended if you plan to keep the loan for a short time such as less than three years, expect your income to increase substantially, or expect interest rates to decrease. With a variable rate loan, you may qualify for a larger loan than you would with a fixed-rate mortgage. For more information on variable rate loans, talk to a mortgage broker or a real estate professional.
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