Mortgage Handbook

Variable-Rate Mortgages

Although they do not provide the same level of predictability for borrowers, variable or “floating” rate mortgages make it possible to benefit from changes in an underlying index of interest rates.

Banks and other financial institutions generally encourage this type of borrowing, since reduces their risk, and prevents asset-liability mismatches during times of high interest rate fluctuation.

Floating-rate mortgages are a good option for buyers so long as mortgage rates are declining, and there is often an option allowing the borrower to “lock in” at a fixed rate, for a fee. These mortgages are also known for their increased level of flexibility, allowing borrowers to pay back chunks of the loan earlier than anticipated, thus reducing the total amortization time.