Legal Definitions - variable-rate mortgage

A variable-rate mortgage is a type of mortgage where the interest rate can change over time based on external market factors. It is also known as an adjustable-rate mortgage (ARM) or flexible-rate mortgage. The lender can adjust the interest rate periodically, which can affect the monthly payments and the total amount paid over the life of the loan.

For example, if a borrower takes out a variable-rate mortgage with an initial interest rate of 3%, but the market interest rates increase, the lender may adjust the interest rate to 4%. This would result in higher monthly payments for the borrower.

Variable-rate mortgages can be risky because the borrower may not be able to afford the higher payments if the interest rates increase significantly. However, they can also be beneficial if the interest rates decrease, resulting in lower monthly payments and potentially saving the borrower money over the life of the loan.