Variable Rate
Last reviewed: September 2, 2026
A variable rate is an interest rate that can change over time instead of remaining fixed for the full life of a loan or investment.
How it usually changes
The rate is often tied to a reference rate or benchmark plus a stated margin. If the benchmark rises or falls, the rate charged to the borrower—or paid to the investor—may change as well.
Simple example
A loan might be priced at a reference rate plus 2 percentage points. If the reference rate is 4%, the loan rate is 6%. If the reference rate later rises to 5%, the loan rate could become 7%, subject to the contract terms.
Variable vs fixed rate
A fixed rate stays unchanged for the agreed period. A variable rate transfers more interest-rate risk to the borrower because payments or interest costs can move.