Should you choose a fixed or a variable interest rate?

Should you choose a fixed or a variable interest rate?

When you take out a mortgage loan, you can choose between two different credit options: a fixed or a variable interest rate. Which interest rate is the most attractive for your situation? A brief word of explanation is perhaps called for.

Borrowing at a fixed rate of interest

What does a fixed interest rate involve?

A fixed interest rate means that the interest rate is fixed at the start of your mortgage loan. It is important to note that this percentage will not change again, regardless of developments in interest rates. 

When should you choose a fixed interest rate?

A fixed interest rate can be advantageous if interest rates are low at the time you take out your loan – especially if you think that rates are set to rise. In that case, you'll continue to benefit from the low interest rate despite the increase in rates. 

The benefits of a fixed interest rate

Your interest rate remains the same every month until the end of your loan. You are shielded from any unpleasant surprises regardless of whether your loan has a term of 15, 20 or 25 years. The fixed rate makes it easier for you to plan your other expenditure and means you can play things safe.

The disadvantages of a fixed interest rate

You'll be unable to profit from any interest rate falls. 

Variable interest rate

What does a variable interest rate involve?

If you opt for a variable interest rate, your interest rate will be adjusted after a certain period of time. This can work in your favour if the interest rate falls, or to your disadvantage if it rises. The exact timing of the interest-rate reviews is set out in the loan product description. The review takes place at least annually or at most every five years.

When should you choose a variable interest rate?

Variable options are chosen more often when market interest rates are high. Customers hope that the interest rate will fall during the term of the loan. 

The benefits of a variable interest rate

A variable interest rate can rise or fall within a certain band

The ‘cap’ sets the maximum that may be deviated from the general rule.

For instance, a cap of +2 indicates that an interest rate of 3% can increase to a maximum 5%. The rate can also fall, in this case to no lower than 1%.


The law stipulates that an interest rate may at most double

For instance, if you have an interest rate of 2.6% with a cap at +3, it may increase to a maximum 5.2% and not 5.6%.


Reducing or extending the term

At KBC Brussels, you can change the term of your home loan at no cost at the time of the interest-rate review.


Disadvantages of a variable interest rate

If market interest rates rise, your monthly repayments will rise following an interest-rate review.

The disadvantages of a variable interest rate

If market interest rates rise, your monthly repayments will rise following an interest-rate review.

How to decide which option is the best for you?

If you go for a variable option, you should always take account of the future interest charges if the interest rate rises. Are you prepared for paying these higher interest charges and is that financially feasible? Or would you prefer to have absolute certainty? If so, you'd maybe be better going for a fixed-rate option. It's also possible to combine the fixed and variable-rate options.

Talk about what you envisage for your home to one of our YourHome Experts any time that suits you.

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