Variable interest

What is variable interest?

A variable interest rate is an interest rate that can vary over the term of a loan, depending on market conditions and other factors. This is in contrast to a fixed interest rate, which remains the same throughout the life of the loan. The level of the variable interest rate is usually based on a reference rate, such as the Euribor, plus a mark-up.

If the reference interest rate increases, the variable interest rate will also increase and if the reference interest rate decreases, the variable interest rate will also decrease. A variable-rate loan can be beneficial when interest rates are low, but can be risky if interest rates rise sharply. Borrowers can sometimes have the option to convert their floating rate to a fixed interest.