A Variable Rate Mortgage, also commonly referred to as an adjustable-rate mortgage or a floating-rate mortgage, is a loan in which the rate of interest is subject to change. When such a change occurs, the monthly payment is “adjusted” to reflect the new interest rate. Over long periods of time, interest rates generally increase. An increase in interest rates will cause the monthly payment on a variable-rate mortgage to move higher.
A variable rate mortgage is one where the rates on your loan could vary. This means that you might not always be paying the same amount on your loan from one month to the next. On the down side, you could end up paying more for your monthly loan payment. On the up side, you could also end up paying less.
This introduces an element of risk. You do not really know what will happen to your variable rate mortgage payments. Because of this risky aspect you can sometimes find better initial deals but, as stated previously, future payments are uncertain. This is not the perfect mortgage for those who like to know exactly what amount they will be paying monthly.
This option can work well for short term loans because you can often get a better beginning deal and you may be able to predict the direction of interest rates better in the short term. It is still a risk (usually less of a risk in short-term loan arrangements) as the interest rates can be unpredictable so you should always be cautious of going into a variable rate mortgage.