Variable Rate Mortgages
A Variable Rate Mortgage is a mortgage that is based on the prime lending rate. This type of mortgage can also be referred to as a floating rate mortgage or an ARM -adjustable rate mortgage.
There are many different Variable rate mortgages to choose from. Some have teaser rates for the first few months. Some have caps so your payment never exceeds a set dollar amount. The majority of adjustable rate mortgages offer rates below prime and the option to convert to a fixed term at any time.
Variable rate mortgages are just like regular fixed rate mortgages except that the interest rate will go up and down with the prime rate. If you qualify, you will be offered a mortgage ranging from 1% below prime to 2% above, depending on your credit. Your payment will be adjusted monthly, to reflect the current interest rate.
Like Fixed Rates, Variable Rate Mortgages can be either Open or Closed. If the mortgage is Closed, then the conditions of the loan are locked in for the length of the term. More often though with Variable Rate Mortgages, the mortgage is Open, and you could lock the rate in or pay the mortgage off at any time if you felt mortgage rates were moving on an upward trend.
The Variable rate mortgage gives you the opportunity to save money while the prime lending rate is good and the comfort of knowing that when the time is right you can switch to a fixed mortgage.