Variable Interest Rate

The interest rate varies. Duh. But...based on what?

Well, think about an ARM, or Adjustable-Rate Mortgage. That rate of interest you're paying on renting the money to buy your home. It varies, usually based on some broad index, like LIBOR. As in: "Borrower's interest rate shall be 50 basis points more than LIBOR as adjusted quarterly." So if LIBOR was 3%, then you the homoewner are paying 3.5% interest, at least this quarter. If LIBOR goes to 4%, then next quarter you'll pay 4.5%. The interest rate you're paying then varies based on LIBOR.

Variable. For a borrower who is very...able (to pay).