Mortgage interest rate: fixed or variable

Mortgage interest directly affects the instalment and total cost. It usually consists of two parts: a reference index and the bank’s margin. Understanding how it works helps you compare offers and choose a safer option.

For a quick comparison of instalments and total costs, use the Mortgage comparison calculator.

To estimate instalments for different rates, use the Mortgage calculator or the Loan calculator.

Fixed vs variable — key differences

Variable rate changes with the reference index. Instalments can rise or fall, affecting your monthly budget.

Fixed rate stays the same for a defined period (for example 5 years). It gives predictability, but after the fixed period the bank proposes new terms.

The choice depends on your risk tolerance and plans. When rates are uncertain, fixed rates provide stability. When rate cuts are expected, variable rates may be cheaper.

What the rate consists of

A mortgage rate typically includes:

• a reference index linked to market rates,
• the bank’s margin,
• product‑related add‑ons (for example required insurance).

The margin depends more on you: down payment size, credit profile and relationship with the bank. Better creditworthiness and higher down payment usually mean a lower margin.

What affects the rate

Key factors include:

• the level of interest rates and the reference index,
• the bank’s margin (often linked to LTV and customer profile),
• down payment amount,
• creditworthiness and income stability,
• additional products (insurance, account, card).

A higher down payment often improves terms. See: Mortgage down payment.

How the rate affects the instalment

For the full cost picture, see: Mortgage comparison and Mortgage overpayment.

With a long term, even a small rate difference can mean a big change in total cost. Compare not only the instalment, but also APRC and total repayment. Helpful context: How APRC works — rules, limits and examples.

For instalment structure, see: Mortgage instalment — how to calculate and Fixed or decreasing instalment.

Rate‑change risk and household budget

With a variable rate, instalments can increase when market rates rise. That creates budget risk, especially when the instalment is a high share of income. Keep a buffer and test your budget for higher‑rate scenarios.

When to consider refinancing

If rates fall or your financial profile improves, refinancing can reduce cost. Compare offers and calculate the benefit: Mortgage refinancing.

What happens after the fixed‑rate period

A fixed rate applies only for a defined period. After it ends, the bank offers new terms, often based on the current index and margin. It is a good moment to compare with market offers and consider refinancing if the cost difference is meaningful.

How to compare offers by interest rate

When comparing rates, look beyond the headline rate and check:

• the margin and its conditions,
• required add‑on products,
• insurance cost over the full term,
• the effect of LTV on the offer.

A low initial rate can be tied to expensive add‑ons. Always calculate the full cost, not just the instalment.

LTV and down‑payment impact on the margin

LTV (loan‑to‑value) is a key factor in the margin. A higher down payment reduces the bank’s risk and often improves terms. If you plan to increase the down payment or overpay, put it into a calculator and compare the real savings.

How to read bank offers

Offers often show several rates: nominal, reference and APRC. For comparison, the total cost and instalment stability over time are what matter most. Check whether the bank requires extra products, because cancelling them can increase the margin.

Scenario simulation

Before choosing a rate, run a few scenarios: fixed for a few years, variable, and a rate‑hike version. This shows how much risk comes from volatility and whether your budget can handle it.

Fixed vs variable in practice

In many offers the rate is fixed only for a defined period and later switches to variable. Check when that switch happens, how the new rate is calculated and whether you can renegotiate at that time. Fixed rates improve predictability, while variable rates can be cheaper at the start but carry more risk.

Reference rate and margin

The nominal rate usually consists of a reference index plus a bank margin. The margin is typically fixed in the contract, while the index can change over time. Ask how often the index is updated and test a scenario with a higher reference rate to see the instalment impact.

Questions to ask the bank

Before signing, clarify:

• how often the rate is updated and when the new instalment applies,
• what happens after the fixed‑rate period ends,
• which add‑on products can change the margin.