adjustable rate


Any interest rate that changes on a periodic basis. The change is usually tied to movement of an outside indicator, such as the prime interest rate. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. For example, you might see a rate set at "prime plus 2%". This means that the rate on the loan will always be 2% higher than the prime rate, which changes regularly to take into account changes in the inflation rate. For an individual taking out a loan when rates are low, a fixed rate loan would allow him or her to "lock in" the low rates and not be concerned with fluctuations.
On the other hand, if interest rates were historically high at the time of the loan, he or she would benefit from a floating rate loan, because as the prime rate fell to historically normal levels, the rate on the loan would decrease.

Use adjustable rate in a sentence

You should always try and get an adjustable rate to offer you greater flexibility in the future parts of the deal.

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The nature of the loan was that of an adjustable rate mortgage so we could expect the interest payments to fluctuate.

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I would much rather have a fixed rate loan than an adjustable rate loan because I will always know what my interest rate will be, regardless of any outside factors.

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