An adjustable rate mortgage is a type of mortgage loan where the interest rate changes periodically based on market conditions. Unlike fixed-rate loans, where the rate remains constant throughout the tenure, an adjustable rate mortgage comes with fluctuating interest rates that may increase or decrease over time. This type of loan is commonly chosen by borrowers looking for lower initial interest rates and affordable monthly repayments during the early years of the loan.

In India, many financial institutions offer adjustable rate mortgage options to customers who wish to finance residential or commercial properties. Understanding how these loans work is important before making a borrowing decision.

What Is an Adjustable Rate Mortgage?

An adjustable rate mortgage, often called a floating-rate mortgage loan, is linked to a benchmark lending rate. The lender adjusts the interest rate whenever market lending rates change. As a result, the EMI amount or loan tenure may also change.

For example, if the benchmark rate increases, the mortgage loan interest rate may rise as well, resulting in higher EMIs. Similarly, if interest rates fall, borrowers may benefit from lower monthly payments.