when a mortgage has a variable interest rate it is more commonly referred to as an adjustable rate mortgage arm many arms start with a low fixed interest rate for the first few years of the loan only adjusting after that period has expired common fixed interest rate periods on an arm are three five or seven years expressed as a 3 1 5 1 or 7 1 arm respectively there are also usually adjustment caps that put a limit on how much the interest rate can go up or down when it adjusts you can use an online calculator to get an estimate of current interest rates on adjustable rate mortgages 
in most cases arms have rates that adjust based on a preset margin and a major mortgage index such as the libor the 11th district cost of funds index cofi or the monthly treasury average index mta index if for example someone takes out an arm with a 2 margin based on the libor and the libor is at 3 when the mortgage s rate adjusts the rate resets at 5 the margin plus the index variable interest rate bonds and securitiesfor variable interest rate bonds the benchmark rate may be the libor some variable rate bonds also use the five year 10 year or 30 year u s treasury bond yield as the benchmark interest rate offering a coupon rate that is set at a certain spread above the yield on u s treasuries fixed income derivatives also can carry variable rates an interest rate swap for example is a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate or vice versa to reduce or increase exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than would have been possible without the swap a swap can also involve the exchange of one type of floating rate for another which is called a basis swap pros and cons of variable interest ratesvariable interest rates are generally lower than fixed interest rates if interest rates go down the borrower will benefit if interest rates go up the lender will benefit variable interest rates can go up to the point where the borrower may have difficulty paying the loan the unpredictability of variable interest rates makes it harder for a borrower to budget it also makes it harder for a lender to predict future cash flows 