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Simple English definitions for legal terms
flexible-rate mortgage
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A quick definition of flexible-rate mortgage:
A flexible-rate mortgage is a type of loan that allows the lender to change the interest rate based on changes in the market. This means that the amount of money you pay each month could go up or down depending on the interest rate. It's also called an adjustable-rate mortgage or a variable-rate mortgage. This type of mortgage can be helpful if you think interest rates will go down in the future, but it can also be risky if rates go up and you can't afford the higher payments.A more thorough explanation:
A flexible-rate mortgage, also known as an adjustable-rate mortgage or a renegotiable-rate mortgage, is a type of mortgage in which the interest rate can be adjusted periodically based on changes in an external market index. This means that the borrower's monthly payments can increase or decrease over time.
For example, if a borrower takes out a flexible-rate mortgage with an initial interest rate of 3%, but the market index increases to 5%, the borrower's monthly payments will also increase to reflect the higher interest rate. Conversely, if the market index decreases to 2%, the borrower's monthly payments will decrease as well.
Flexible-rate mortgages can be beneficial for borrowers who expect their income to increase in the future, as they can take advantage of lower initial interest rates and potentially save money on monthly payments. However, they can also be risky for borrowers who are not prepared for potential increases in monthly payments.