Variable rate debt

Any interest rate or dividend that changes on a periodic basis. Variable rates are often used for convertibles, mortgages, and certain other kinds of loans. The change is usually tied to movement of an outside indicator, such as the prime interest rate. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. Also called adjustable rate. Continuously refinanced short-term debt for a company's ongoing operations. The advantage of floating debt is that there is a chance to benefit from reductions in interest rates. In addition, interest rates on long-term debt are often higher than interest rates on short-term debt, so the company might be saving itself money by refinancing short-term debt as opposed to borrowing long-term. However, the downside is that the company might suffer if interest rates rise and they have to refinance at a higher cost