Variable Rate

A variable rate, often known as a variable interest rate, is charged to a borrower on a variable-rate loan, such as a mortgage. A variable rate is often represented as an annual percentage and moves in lockstep with a rate index. A variable interest rate is dependent on a benchmark rate or index, such as the Wall Street Journal's prime rate. When that index rises or falls, it influences the borrower's interest rate. A variable rate has the advantage that when it fails, so does the borrower's interest payment. However, some variable-rate loans contain conditions that limit rate decreases.