Variable Rate Loan

A variable rate loan is one where the interest rate charged is tied to money market rates or a lending institutions cost of funds. This type of loan is most common in the mortgage lending industry and is very popular when interest rates are considered to be at the top of a cycle. Variable rate loans are similar in nature to adjustable rate loans in that the borrower's monthly or quarterly payment will change on a regular basis and is not a product for the budget minded consumer. Variable rate loans become very popular when lending institutions offer teaser rates which are lower than fixed rate loans. These teaser rates tend to last for very brief periods of time.