Adjustable rate

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Adjustable rate

Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. Typically, such issues have a set floor or ceiling, called caps and collars that limits the adjustment.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Adjustable Rate

An interest rate on a loan or convertible security that changes periodically. For example, an adjustable rate mortgage has a certain interest rate that changes with varying frequency. The frequency of the change is called the adjustment rate. Usually, the adjustable rate is set according to some outside benchmark; for example, a loan might set the interest rate at LIBOR + 1%. An advantage of adjustable rate loans is the fact that one's interest rate might fall over time; this is a particular advantage if prevailing interest rates are high at the time of the loan. A disadvantage to adjustable rates is the uncertainty associated with them: one's payments on the loan generally rise or fall.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Short-term and adjustable interest rates, such as those found with credit cards, short-term business loans and adjustable mortgages, typically follow the federal funds rate.
HUD is aiming to push the HECM market back toward loans that provide flexible lines of credit at adjustable interest rates.
Option ARMs have adjustable interest rates and different monthly payment options.
Contributing to the rise in foreclosures are subprime loans offered to buyers with poor credit, often with little or no money down, that have adjustable interest rates that later reset to higher levels.
He did not include proposals to convert disaster loans to adjustable interest rates or to impose new fees on the loan programs.
MPs on the Labour-dominated committee are also set to suggest adjustable interest rates on student loans, it said.
These loans typically have higher, adjustable interest rates because the lender is taking a bigger risk.

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