Fixed or variable rate: how to choose
What you pay for the safety of a fixed rate, what risk a variable one carries, and how to compare the two offers.
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The difference, briefly
With a fixed rate you know exactly what you pay for the whole period it is fixed for. With a variable rate, the payment follows a reference index, in Romania usually IRCC, and changes periodically.
Most offers today are mixed: a fixed rate for the first years, then variable to the end.
What a fixed rate buys you
It buys certainty. The bank takes on the risk of rates rising and charges for it, so a fixed rate is often a little higher than the variable rate on the same day.
That price is worth paying if:
- the payment is a large share of your income and a rise would put you in difficulty;
- you are early in the loan, when the balance is large and every percentage point is felt most;
- you prefer to know in advance what you pay.
The risk a variable rate carries
The risk is yours, in both directions. If rates fall, you pay less without doing anything. If they rise, your payment rises with them.
A variable rate also has a practical advantage: early repayment carries no fee, so you can refinance or pay ahead at any time. On a fixed rate the fee is capped by Romanian law at no more than 1% of the amount repaid.
How to compare two offers
Don't compare only the first day's rate. Look at three things:
- How long the fixed period lasts and what rate follows it. An offer with a low rate for two years and a high margin afterwards can cost more overall.
- The margin in the variable period, which stays the same to the end.
- The APR (DAE), which includes fees and insurance.
Enter both offers in the payment calculator, using "fixed, then variable", and compare the payment after the fixed period and the total cost.