See your monthly payment, total interest and a month-by-month amortization schedule for any fixed-rate loan.
Choosing between a fixed and a variable interest rate is one of the biggest decisions you’ll make on a mortgage, car loan or business loan. Neither is always cheaper. The right choice depends on what rates do next, which nobody knows, and how much uncertainty your budget can absorb, which you can know.
Fixed-rate loans
A fixed rate stays the same for the entire term, or for a fixed period such as 2, 5 or 10 years on many mortgages. Your monthly payment is therefore predictable to the cent, and you can see every future payment in an amortization schedule from day one.
Pros
- Certainty: payments never rise during the fixed period.
- Easy budgeting and planning.
- Protection if market rates climb.
Cons
- Usually starts higher than the equivalent variable rate. You pay a premium for certainty.
- You don’t benefit if rates fall unless you refinance, which may involve fees or early repayment charges.
Variable-rate loans
A variable (floating or adjustable) rate is tied to a benchmark, such as a central bank rate, SOFR, EURIBOR or KIBOR, plus a fixed margin. When the benchmark moves, your rate and payment move with it, typically at set reset dates.
Pros
- Usually starts lower than a fixed rate.
- You benefit automatically when rates fall.
- Often more flexible: overpayments and early repayment are frequently allowed without penalty.
Cons
- Payments can rise, sometimes sharply.
- Harder to budget long-term.
How much does a rate change matter?
Use the loan calculator to stress-test a variable loan. Here is a $200,000 loan over 25 years:
| Rate | Monthly payment | Total interest |
|---|---|---|
| 5.0% | $1,169 | $150,754 |
| 6.0% | $1,289 | $186,581 |
| 7.0% | $1,414 | $224,068 |
| 8.0% | $1,544 | $263,090 |
Each percentage point adds roughly $120–130 a month to the payment. If a 2-point rise would strain your budget, the predictability of a fixed rate has real value to you.
A simple decision framework
Ask yourself three questions:
- Could I comfortably afford the payment if the rate rose by 2–3 points? If not, lean fixed.
- How long will I keep the loan? Short horizons favour variable, because the savings in the first years may outweigh later risk, and you may sell or refinance anyway.
- How much is peace of mind worth? Some people would rather pay a little more for a payment that never changes.
Hybrid options
Many lenders offer a middle path:
- Fixed-then-variable: fixed for an initial period (for example 5 years), then floating.
- Split loans: part fixed, part variable, so you hedge both ways.
- Rate caps: a variable rate with a ceiling it can’t exceed, for a fee.
Compare on APR, not the headline rate
The APR (annual percentage rate) includes most fees as well as interest, so it’s the fairest comparison between offers. A loan with a lower rate but a large arrangement fee can be more expensive overall, especially on smaller or shorter loans.
Variable rates and your amortization schedule
When a variable rate resets, the lender recalculates the payment so the remaining balance still clears by the end of the term. You can model this by running the remaining balance and remaining months through the calculator at the new rate. To understand why that recalculation front-loads interest again, see How Loan Amortization Works (With a Worked Example).
Bottom line
Choose fixed if budget certainty matters most or rates are low and likely to rise. Choose variable if you have headroom in your budget, a shorter horizon or plans to overpay. Whichever you pick, paying a little extra each month reduces your exposure. Here’s how to pay a loan off faster.
See your monthly payment, total interest and a month-by-month amortization schedule for any fixed-rate loan.