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Variable Interest Rate

What is a 'Variable Interest Rate'

A variable interest rate is an interest rate on a loan or security that fluctuates over time, because it is based on an underlying benchmark interest rate or index that changes periodically. The obvious advantage of a variable interest rate is that if the underlying interest rate or index declines, the borrower's interest payments also fall. Conversely, if the underlying index rises, interest payments increase.

Variable Interest Rate Credit Cards

Variable interest rate credit cards have an annual percentage rate (APR) tied to a particular index, such as the prime rate. The prime rate most commonly changes when the Federal Reserve adjusts the federal funds rate, resulting in a change in the rate of the associated credit card. The rates on variable interest rate credit cards can change without advance notice to the cardholder.

Variable Interest Rate Loans and Mortgages

Variable interest rate loans function similarly to credit cards except for the payment schedule. While a credit card is considered a revolving line of credit, most loans are installment loans, with a specified number of payments, leading to the loan being paid off by a particular date. As interest rates vary, the required payment will go up or down according to the change in rate and the number of payments remaining before completion.

Variable Interest Rate Bonds

For variable interest rate bonds, the benchmark rate may be the London Interbank Offered Rate  (LIBOR). Some variable rate bonds also use the five-year, 10-year or 30-year U.S. Treasury bond yield as the benchmark interest rate, offering a coupon rate that is set at a certain spread above the yield on U.S. Treasuries.

'Variable Interest Rate'


Further Reading


Economics, finance and development in China
www.emerald.com [PDF]
… R). The shock in Ln(R) innovation is explained by the economic growth variable in the … The JJ cointegration approach is employed to determine the long run relationship among variables … indicate that the shock in the financial development index and real interest rate is mostly …

Pricing interest-rate-derivative securitiesPricing interest-rate-derivative securities
academic.oup.com [PDF]
… R). The shock in Ln(R) innovation is explained by the economic growth variable in the … The JJ cointegration approach is employed to determine the long run relationship among variables … indicate that the shock in the financial development index and real interest rate is mostly …

Can macroeconomic variables explain long-term stock market movements? A comparison of the US and JapanCan macroeconomic variables explain long-term stock market movements? A comparison of the US and Japan
www.tandfonline.com [PDF]
… R). The shock in Ln(R) innovation is explained by the economic growth variable in the … The JJ cointegration approach is employed to determine the long run relationship among variables … indicate that the shock in the financial development index and real interest rate is mostly …

Interest rate uncertainty and the financial intermediary's choice of exposureInterest rate uncertainty and the financial intermediary's choice of exposure
onlinelibrary.wiley.com [PDF]
… R). The shock in Ln(R) innovation is explained by the economic growth variable in the … The JJ cointegration approach is employed to determine the long run relationship among variables … indicate that the shock in the financial development index and real interest rate is mostly …

Financial structure and the interest rate channel of ECB monetary policyFinancial structure and the interest rate channel of ECB monetary policy
papers.ssrn.com [PDF]
… R). The shock in Ln(R) innovation is explained by the economic growth variable in the … The JJ cointegration approach is employed to determine the long run relationship among variables … indicate that the shock in the financial development index and real interest rate is mostly …

The determinants of bank interest rate margins: an international studyThe determinants of bank interest rate margins: an international study
www.sciencedirect.com [PDF]
… R). The shock in Ln(R) innovation is explained by the economic growth variable in the … The JJ cointegration approach is employed to determine the long run relationship among variables … indicate that the shock in the financial development index and real interest rate is mostly …


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