How to choose between a fixed and variable

2 min read

Step 1Test affordability

Step 2Weigh certainty

Step 3Consider the term

Amount (£)

Option A annual rate (%)

Option A term (months)

Option B annual rate (%)

Option B term (months)

Compares total cost and monthly payment of two offers side by side.

Step 1 — test affordability at a higher rate

Stress-test the variable option at +1% and +2% using the rate-rise stress test. If a rise would break your cover, that points to fixing.

Step 2 — weigh how much you value certainty

A fixed rate gives predictable payments but usually starts higher and can carry a break cost. If budgeting certainty matters more than the last basis point, lean fixed.

Step 3 — match to the term and horizon

For a short project, a variable rate with a stress buffer may suffice. For a core, long facility, fixing or hedging can be worth the premium. Consider a cap if you want protection with some upside.

Step 4 — compare the numbers

Model the fixed payment against a stressed variable payment with the calculator below. Decide on the numbers, not the headlines.

Step 5 — plan for the reversion

If you fix, diarise the reversion date and review before it hits.

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Frequently asked questions

Is fixed or variable cheaper?

Variable often starts cheaper but can rise; fixed costs a little more for certainty. Which is cheaper overall depends on what rates do, which no one can guarantee.

When should I fix?

When a rate rise would strain affordability, when you value predictable payments, or when you have a long core facility. Stress-test first to decide.

Can I get protection without fully fixing?

Yes — a cap limits how high a variable rate can go while keeping some benefit from falls. It suits larger facilities where a rise would hurt.