Everyday money · General financial education

Variable vs fixed rates

Variable means the rate can change. Fixed means it stays for the agreed time. A lock protects and constrains, on both sides.

In more detail

On a loan, a fixed rate gives payment planning, while a variable rate can rise or fall with a reference. On a deposit it is the mirror: fixed holds the credit interest, variable often follows the market. A lock trades adjustment for certainty. Whether the fixed rate starts “cheaper” says nothing about later.

Background

The point where a fixed rate and a variable rate would cost the same is only a model: you assume when and how far the reference rate moves. Upper limits on the rate, the gaps between resets and leaving early change the picture. A longer lock does not always lower the rate. The yield curve can put higher rates on longer fixes, and you give up the chance to adjust. Finmon does not forecast a market path.

An example

Loan A starts variable at 4%, loan B fixed at 5%. If the reference falls, A can become cheaper; if it rises, A can become dearer than B. The inverse holds for a deposit.

A common misconception

The longer I lock the rate, the cheaper it becomes.

A lock gives certainty and takes away adjustment. Whether the rate falls with that is not given.

Source: CFPB · Fixed vs adjustable rates. Last reviewed: 2026-10-26. Editorially reviewed on 2026-10-26. Next review 2027-10-26. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.