A variable rate mortgage agreement, as distinguished from a fixed rate mortgage agreement, calls for an interest rate that will fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments. No limits are placed on the degree to which the interest rate or the payments can vary.

A variable rate mortgage or floating rate mortgage is a mortgage loan where the interest rate varies to reflect market conditions.

The interest rate will normally vary with changes to the base rate of the central bank and reflects changing costs on the credit markets. This method of variation directly linked to underlying costs benefits lenders by ensuring a profit by passing the interest rate risk to the borrower. The borrower benefits from reduced margins to the underlying cost of borrowing compared to fixed or capped rate mortgages where the lender must hedge against potential interest rate changes where the borrower benefits if the interest rate falls and loses out if interest rates rise.

The loan may be offered at the lender's standard variable rate/base rate. There may be a direct and legally defined link to the underlying index but where the lender offers no specific link to the underlying market of index they can choose to increase or decrease at their discretion.

In many countries variable rate mortgages are the standard method of lending and are simply referred to as mortgages. In the US they are referred to as adjustable rate mortgages.

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