- The interest rate on a variable rate mortgage is determined by adding the interest rate index to the margin. The amount of the margin is determined by the lender based on the riskiness of the borrower.
- Variable rate mortgages usually include an introductory period from one to five years where the rate does not change. The interest then changes typically every year or every two years after the introductory period ends.
- Some variable rate mortgage offer caps on how much the interest rate can change. These caps can apply to how often the interest rate can change each time it adjusts or how much it can change over the life of the loan.
- Variable rate mortgages allow borrowers to take advantage of falling interest rates without having to pay for the costs of loan refinancing.
- Beware that variable rate mortgage monthly payment can increase drastically over a short period of time. If you cannot make the monthly payment, you may lose your home.
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