Fixed or Variable? The Decision Is About Your Budget, Not the Market
Almost every article on this question tries to answer it by predicting interest rates. That is the wrong question, because nobody — including the people setting them — knows where rates will be in four years.
The answerable question is different: what happens to your household if the payment rises by two or three percentage points? If the answer is uncomfortable rather than merely annoying, you are buying certainty, and the small premium a fixed rate carries is what certainty costs.
What the two actually are#
A fixed rate is guaranteed for a stated period. A variable rate moves, either at the lender’s discretion or by tracking a published reference rate such as Euribor or a central bank policy rate. The critical detail is that the fixed period and the term are different things, and in several markets they are wildly different.
| Market | Typical fixed period | Relationship to the term |
|---|---|---|
| United States | 30 years | The whole term |
| France, Netherlands | 20–30 years | Usually the whole term |
| Germany | 10–15 years | A long window inside a longer term |
| United Kingdom | 2–5 years | A short window inside a 25–40 year term |
| Spain, Portugal, Italy | Fixed and variable both common | Varies by product |
| Poland, Sweden | Short fixings or variable | Frequent repricing |
A British five-year fix and a French twenty-five-year fix are both called fixed rates and are not the same product. This is why advice translated between markets is so often wrong.
The reversion rate is the part that costs money#
Where the fixed period is shorter than the term, what happens at the end of it matters more than the headline. Most lenders move you onto a standard variable rate that is materially higher, and the cheapest short fixes are frequently the ones with the least attractive reversion. The workable habit is to treat the end of the fixed period as a diary entry, not a surprise: start looking three to six months before.
- Note the reversion rate when you take the product, not when you reach it.
- Diarise the end of the fixed period three to six months in advance.
- Check the early repayment charge — it usually ends before the fix does, allowing a costless switch.
- Remortgaging to a new product is normal, expected, and where most of the saving lives.
The comparison that actually decides it#
| Question | Points to fixed | Points to variable |
|---|---|---|
| Could you absorb a 3-point rise? | No | Yes, comfortably |
| Is the budget tight month to month? | Yes | No |
| Might you repay early or move soon? | Only with a short fix | Yes — usually no exit penalty |
| Is the rate difference large today? | No — certainty is cheap | Yes — the discount is real money |
| Is your income variable? | Yes | No |
| Do you have significant savings? | Not decisive | Yes — you can absorb movement |
Note that two of these are about your circumstances and only one is about the market. That ratio is the honest one.
The middle options#
The choice is not always binary. Several markets offer arrangements that split the difference, and they are worth asking about explicitly because they are rarely advertised.
- Split loans — part fixed, part variable, which halves the exposure in both directions.
- Capped variable — moves with the reference rate but cannot exceed a ceiling.
- Drop-lock — a variable product with the contractual right to switch to a fix later.
- Offset — savings reduce the balance interest is charged on, useful when you hold cash.
- Short fix with no exit charge — certainty for the near term, freedom to move.
A split loan is the underrated one. It is not a compromise so much as an acknowledgement that you do not know either, which is the accurate position.
What a comparison should look like#
- Compare APR, not the headline rate: the fee makes a bigger difference on a small loan than the rate does.
- Compare the total cost over the fixed period, including fees, rather than the monthly payment.
- Write down the reversion rate and calculate the payment at it.
- Calculate the payment at three points above the offered rate, and decide whether it is survivable.
- Check the early repayment charge and the annual overpayment allowance.
- Only then compare the monthly figures.
The order matters. Comparing monthly payments first is how a product with a large fee and an expensive reversion wins a comparison it should lose.
Frequently asked questions
Is a fixed or variable mortgage rate better?
Neither, in the abstract — it depends on your ability to absorb a rise rather than on a forecast. A fixed rate buys a known payment and usually costs slightly more at the outset; a variable rate starts lower and moves with a reference rate. The honest test is arithmetic: calculate the payment at three percentage points above the rate you have been offered, and ask whether it would be uncomfortable or merely annoying. If uncomfortable, buy the certainty.
What happens when my fixed rate ends?
You move to the lender’s reversion rate, which is normally significantly higher, unless you have arranged something else first. This is where a great deal of money is lost quietly. The early repayment charge usually ends at or before the end of the fixed period, so a switch at that point costs nothing, and lenders will offer new products to existing customers. Start looking three to six months before the fix ends rather than in the month it does.
Can I switch from variable to fixed?
Usually yes, though the terms differ. Some variable products carry a contractual right to convert to a fixed rate — sometimes marketed as drop-lock. Otherwise you would remortgage onto a new product, either with your existing lender or a different one. Check for early repayment charges first: pure variable products often have none, which is one of their real advantages, but that is not universal.
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