Variable

A variable-rate mortgage is where the interest rate of the loan changes over the course of the mortgage term. The variable rate mortgage is usually tied to the prime rate of lending available to banks and set by the Federal Reserve Bank in Washington, D.C.

When the prime rate is lowered, there is a good chance you will save money with a variable interest rate loan. But, when the rates go up, the cost of a variable rate mortgage goes up, and this can be a very trying event for those who are on a tight budget as they try to pay their monthly mortgage.