Variable Interest Rates

Definition

Variable interest rates are interest rates that can fluctuate over time based on changes in market conditions such as inflation, economic growth, or central bank policies. Borrowers may experience changes in their monthly payments due to these fluctuations.

Related terms

Fixed Interest Rates: Fixed interest rates remain constant over a specified period of time, providing borrowers with stability and predictability in their loan repayments.

Federal Funds Rate: The federal funds rate is the target interest rate set by central banks to influence borrowing costs between commercial banks. Changes in this rate can impact variable interest rates.

Adjustable-Rate Mortgage (ARM): An ARM is a type of mortgage loan with an initial fixed interest rate for a certain period, after which the rate becomes variable. Borrowers may benefit from lower initial rates but face potential increases later.