In real estate finance, a variable interest rate is an interest rate that changes over time in response to movements in prevailing market rates. The rate may increase or decrease depending on the terms of the loan and the underlying index to which it is tied.
In mortgage loans, variable interest rates are typically subject to limits on how often the rate can adjust and the maximum amount of change at each adjustment or over the life of the loan. These caps are designed to provide some protection to borrowers against extreme fluctuations.
