• An adjustable rate mortgage uses a floating rate for part or all of the term of the loan rather than a fixed rate for the entire term.

  • A variable rate most commonly uses an index rate, such as the prime or federal funds rate, and then adds a credit margin to it.
  • The most common example is an adjustable rate mortgage, or ARM, which typically has an initial fixed rate period of several years followed by regular adjustable interest rates for the rest of the loan.