Since the 2008 financial crisis, the housing market has been steadily recovering. While this is good news for potential buyers, this will also mean steady increase in bank interest rates. For those with variable rate mortgages, this rate increase will affect their bottom line. This might worry those who aren’t that familiar with these mortgage terms, but a quick rundown will show what exactly this has to do with their monthly payments.

First of all, the variable rate will change from month to month, and will usually be determined at the beginning of every month. The rate will then be applied to the principal amount, which will then affect the interest amount. However, the variable rate will not affect the monthly payment amount. Why is this?

While the monthly payment stays the same, what changes is the number of payments that goes into paying off the mortgage. This is because the increasing rate will of course add to the interest amount. Luckily, a decreasing rate will also help lessen the potential payment amount, but this happens rarely.

To put it in simple terms, mortgages with variable rates will always have the same monthly payment amount. What changes is the number of payments needed to pay off the total mortgage, including a possible increase in the interest amount.