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.