What is the difference between a variable rate and a fixed rate?

A fixed rate mortgage refers to a mortgage where the interest rate remains constant (fixed) for a designated period, usually ranging between 1 to 5 years. Once the fixed rate period concludes, you are typically shifted to a reversion rate. On the other hand, variable rate mortgages are tied to 1, 3, or 6 month EIBOR, with an additional fixed percentage added by the bank. This implies that the interest rate you pay can either increase or decrease over time, depending on the changes in EIBOR. For instance, if EIBOR stands at 2.5% in month 1, and the fixed margin applied by the bank is 1.49%, then the variable rate you would pay is 3.99%. If EIBOR subsequently rises to 3.5% in month 6, then your variable rate would be adjusted to 4.99%. To learn more about the distinction between fixed and variable rate mortgages, as well as their respective benefits and drawbacks, initiate your mortgage comparison journey here.