A variable rate mortgage is a mortgage that has an interest rate that can change during the term of the loan. A variable rate is always attached to the lender’s prime rate. If the prime rate goes up or down, then the variable rate effectively goes up or down.
Benefits Of A Variable Rate Mortgage
The benefit of a variable rate mortgage is that it is usually lower than a fixed rate mortgage. A fixed rate mortgage has an interest rate that is locked and fixed for the entire term of the loan, whereas the variable rate can change, however historically the variable rate has always carried a lower interest rate than a fixed rate. Another major benefit of a variable rate mortgage is the penalty for breaking or early repayment of a variable rate mortgage. In most cases, the penalty for breaking a variable rate mortgage is 3 months of interest payments only.