Variable or fixed interest rate?

The key points at a glance

How do you find a reliable adviser for expert mortgage advice? We've put together five tips to help you get the best mortgage advice possible.

1. What is a variable interest rate?

When taking out a mortgage, you can choose between a fixed or a variable interest rate. If you go for a variable rate, the interest will move in line with the market rate. If rates go up, your monthly payments will go up too. On the other hand, you can save money when rates fall. You can't always take out a fully variable rate. Many banks only allow you to apply a variable rate to part of your mortgage, while the rest can only be fixed for a very short period.

2. Calculating a mortgage with a variable interest rate

Want to calculate a mortgage with a variable rate? It works slightly differently from calculating with a fixed rate. When calculating your maximum mortgage, you need to specify the interest rate you'll be paying. This determines how high the mortgage payments will be, and from there the maximum loan amount can be worked out.

Because a variable rate moves with the market, you can't simply pin down a single rate. You can run multiple calculations to get an idea of your maximum mortgage and monthly costs. Keep in mind that the bank will expect some extra security from you.

3. Calculating different interest rate scenarios

If you want to calculate your mortgage with a variable rate, it's wise to look at both a best-case and a worst-case scenario. Work out the maximum you could borrow at the often lower variable rate, but also what you could borrow if you fixed the rate at a higher level. That way you avoid a situation where your monthly payments become unmanageable if rates rise. Also calculate mortgages with a fixed rate to see what a variable rate might mean for your monthly costs (interest plus repayment).

4. Extra security for the bank

With a variable rate, you often need to offer the bank extra security. You're likely taking out a mortgage for 30 years, and the bank wants confidence that you can keep up the monthly payments throughout that period, even if rates rise significantly in the meantime. The more own money you put in, the larger the portion of your mortgage you can take out at a variable rate. You can also choose security by fixing the rate at any point (free of charge) for 5, 10 or 20 years at the current rates.

Frequently asked questions

What is a variable interest rate?

Taking out a mortgage with a variable rate means the interest moves in line with the market rate.

How do I calculate a mortgage with a variable interest rate?

When calculating a mortgage with a variable rate, it's useful to run the calculation with both a low rate and a high rate.

Which is cheaper: a fixed or variable interest rate?

It's hard to say which is cheaper, because it depends on whether rates go up or down with a variable rate. A variable-rate mortgage does carry more risk, since rates could rise significantly and push your monthly payments up.

Can I switch from a variable rate to a fixed rate?

Yes, it's generally possible to switch your variable rate to a fixed rate at the current interest level. This is usually free of charge.