The Variable-Rate Mortgage

While the variable-rate mortgage is not as common as the fixed-rate option in the United States, it is still one of the most common mortgage loan options available. Unlike the fixed-rate mortgage, in which the interest rate is fixed and does not change over time, the interest rate of the variable-rate mortgage adjusts over time in relation to the base interest rate set by the Federal Reserve.

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How a Variable-Rate Mortgage Works

Variable-rate mortgages are also called “floating mortgages,” because the interest rate “floats” along with the base interest rate. Lending institutions offer these loan arrangements because it offers them a degree of protection in the eventuality of a sudden increase in the interest rate. By pegging their loan’s interest rate to the Federal Reserve’s interest rate, they effectively pass this risk onto the borrower.

However, there are also advantages to the borrower. For example, the mitigated risk also decreases the costs of borrowing.

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For many people, mortgages are the largest loan they will ever take. Being unable to make regular payments can have serious financial repercussions. If you or someone you love is suffering from the burden of unsustainable levels of debt, the West Palm Beach bankruptcy attorneys of Eric N. Klein & Associates, P.A., may be able to help. Please contact us today by calling 561-353-2800 to schedule a free consultation.