Adjustable Rate Loans

ADJUSTABLE RATE LOANS – these are loans where the lending financial institution makes predetermined adjustments to the interest rate at specific time periods. Such adjustments are typically set to change at one, three or five year intervals. Borrowers opting to take an adjustable rate loan are taking on the risk of the rise in interest rates during the adjustment period. If the borrower anticipates interest rates to rise modestly stay constant or potentially fall over the term of the loan, then an adjustable rate loan is particularly attractive. However, if rates are expected to rise and rise sharply, this product is not practical. The ultimate risk is taking on potentially too much debt and getting saddled with significantly larger payments when the adjustment occurs.