<p>A variable interest rate is a type of interest rate that can change over time, typically tied to a benchmark rate such as the federal funds rate or the prime rate. Unlike fixed interest rates, which remain constant throughout the loan term, variable interest rates fluctuate based on market conditions and the performance of the underlying benchmark.</p>

<h2>How It Works</h2>
<p>Variable interest rates are usually expressed as the benchmark rate plus or minus a specified margin. For example, a variable interest rate might be set at "prime + 2%" or "LIBOR + 3%". When the benchmark rate changes, the interest rate on the loan adjusts accordingly. The frequency of these adjustments and the caps or floors on the interest rate are outlined in the loan agreement.</p>
<ul>
  <li><strong>Adjustment Period:</strong> The time between interest rate adjustments, typically every month, quarter, or year.</li>
  <li><strong>Interest Rate Cap:</strong> The maximum interest rate that can be charged during the loan term.</li>
  <li><strong>Interest Rate Floor:</strong> The minimum interest rate that can be charged.</li>
</ul>

<h2>Why It Matters</h2>
<p>Variable interest rates matter because they can significantly impact the cost of borrowing. When interest rates are low, variable rates can offer savings compared to fixed rates. However, when interest rates rise, borrowers with variable rates may face higher payments. For instance, a homeowner with a $200,000, 30-year mortgage at a variable rate of 3% might see their monthly payment increase by $100 if the interest rate rises to 6%.</p>