Variable-Rate Mortgage

Quick Summary

A mortgage where the interest rate can change over the term, often tied to prime rate.

ELI5 Explanation

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If prime changes, your mortgage cost can change too.

Detailed Explanation

Variable-rate mortgages are commonly priced as Prime plus or minus a spread. Depending on the product, your payment may change with prime, or the payment may stay the same while more goes to interest when rates rise. Understanding the contract details is essential.

Example

A mortgage priced at Prime - 0.50% changes when prime changes, affecting either payment amount or interest/principal split.

Why It Matters

Variable rates can be cheaper at times, but payment volatility can impact cash flow and qualification comfort.