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An '''Adjustable rate loan''' is a loan where the interest rate changes over the life of the loan.
==Home loans==
Usually the interest rate will start low and then increase based upon the terms of the contract. It is common to have a [[loan cap]] and incremental caps over specific time periods. Rates usually start much lower than for [[fixed rate loan]]s and are therefore easy to qualify for. The loans will usually be tied to a specific index such as the [[prime rate|prime]] or the [[LIBOR]]. Adjustable rate loans are usually more popular for people having difficulty qualifying or for those who don't expect to stay in the house for long.
Ex. A loan may start with 2.9% rate tied to the prime rate + 2%. The loan will readjust every 6 months with a maximum increase of 2 percent per adjustment. The loan cap is 15.9%
[[Category: Economics]]
==Home loans==
Usually the interest rate will start low and then increase based upon the terms of the contract. It is common to have a [[loan cap]] and incremental caps over specific time periods. Rates usually start much lower than for [[fixed rate loan]]s and are therefore easy to qualify for. The loans will usually be tied to a specific index such as the [[prime rate|prime]] or the [[LIBOR]]. Adjustable rate loans are usually more popular for people having difficulty qualifying or for those who don't expect to stay in the house for long.
Ex. A loan may start with 2.9% rate tied to the prime rate + 2%. The loan will readjust every 6 months with a maximum increase of 2 percent per adjustment. The loan cap is 15.9%
[[Category: Economics]]