Glossary

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Variable Rate
The term variable rate refers to a specific type of mortgage. A variable rate mortgage can be clearly contrasted with a fixed rate mortgage, and, as the name suggests, it can see its interest rate vary on a yearly basis. While the fixed rate mortgage is set in stone, the variable rate changes when any number of indices changes. Some loans will be indexed to the rate paid by the government on treasury bills; others might change based upon the rate paid by banks on their notes. This depends upon the terms of the specific mortgage. People who go with variable rate mortgages usually do so because they are comfortable with the risk or because they have some reasonable expectation that rates will be lower in the future for one reason or another. Many financial advisers do not recommend these loans because they make financial planning difficult for home buyers.