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What is the Variable Interest Rate

When the purchaser purchases land or property, if he or she is unable to come up with the entire amount, what generally happens is that they ask for a loan. These loans are mortgages against the property. The loans are given on two conditions. The first is that it is with a fixed interest rate and the second is a variable interest rate.

In terms of loans taken on property for fixed interest rates, the rate of interest which is applicable on the principal amount is fixed. This can be either a lumpsum payment every month or it could be calculated on the reducing balance.

The other type of interest which is payable is called the variable interest rate. In this based on the inflation, the bank lending rates as well as the bank interest on deposits, there are chances of the interest rate either going up or coming down. In this case, the interest rate is dependent and the interest rate that the person initially agrees to paying at the start of the loan is not the same they will probably end up paying a few months or years down the line.

Whenever there is a change in the interest rate, there is a document which needs to be signed and this is legally binding. The borrower as per this agreement needs to agree to pay interest at the rate which is now prescribed by the lender per annum on the future installments which are due including the one which starts or is due from a certain date.

Variable Interest Rate