Adjustable Rate Loan

Adjustable Rate Loan

An adjustable rate loan is a home or mortgage loan that has a low introductory interest rate that will last for a certain period of time usually 3 to 5 years and then the adjustable rate home or mortgage loan will adjust every year after for the remaining time period which will usually works out to a 30 year loan. After the low introductory interest rate, the interest rate will change to whatever is set up in the adjustable rate loan contract and your monthly loan or mortgage payment will probably change at this point. The adjustable rate loan monthly payment amount will usually have a cap that is set when the loan or mortgage is first taken out. An adjustable rate loan or mortgage will also be known as a “variable rate mortgage” or a “floating rate mortgage”.


An adjustable rate loan has some advantages and disadvantages that current or potential homeowners may want to consider before obtaining an adjustable rate loan or mortgage. One main advantage of an adjustable rate loan could be the fact that the initial interest rate is lower than a fixed rate type loan, which means that your monthly payment will be lower at the start of your adjustable rate loan. An adjustable rate loan might be better for current or potential homeowners who are planning on staying in their home for a shorter period of time. If current or potential homeowners think their income will grow in the future, the current and potential homeowner may feel comfortable with the idea of having a lower payment at first then they may be comfortable with the higher mortgage payment when their income is higher and the adjustable rate loan adjusts to the new rate. The one main disadvantage of having an adjustable rate loan is this type of loan is usually considered to carry a greater risk for current or potential homeowners because the interest rate will probably go up after the initial period ends.