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Variable Interest Rates Variable interest rates refer to an interest rate that fluctuates when a loan is still in force. They change because the prevailing rate moves up or down. As for as mortgages are concerned, there are generally maximums because of the frequency and amount of fluctuation. It is also called as flexible interest rate or adjustable interest rates. These interest rates either rise or fall according to the movement of an index of interest rates. A rise in the index would lead to the increase in the loan rate. On the other hand, a fall will lead to decrease in the same. Credit cards those charge according to the variable interest rates on the basis of a specific spread over the prime rate can be sited as examples. Similarly some home equities also charge these interest rates along with prime rates. In simple words, variable interest rates are amounts of compensation to lenders which can be varied over the maturity of loans. This amount of variation is governed by a suitable index. More Glossary Terms Explained here |
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