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How does the Variable Interest Rate Mortgage work?
A Variable Interest Rate Mortgage has fixed payments, but changes in interest rates affect how the payment amount is applied to the mortgage. For example, if interest rates go down, more of the payment goes to principal, and if interest rates go up, more of the payment goes towards the interest. The interest is compounded monthly, unlike a fixed-rate mortgage where interest is compounded on a semi-annual basis. Although the variable interest rate may change monthly, the borrower's monthly payments remain fixed, in most cases for the full five-year term.
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