Variable Rate

A variable rate agreement, as distinguished from a fixed rate agreement, calls for an interest rate that may fluctuate on a periodic basis over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. A variable rate is also known as an adjustable rate.

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