Fixed vs Variable Rate Calculator

How it is calculated

Both loans are costed with the standard level-payment formula, one at the fixed rate and one at a single average rate you expect for the variable loan.

i = rate ÷ 100 ÷ 12
payment = P × i ÷ (1 − (1 + i)−n)
total interest = payment × n − P
difference = fixed interest − variable interest

P is the loan amount in dollars and n the number of months (years × 12). At a 0% rate the payment is P ÷ n. The loan must be positive, rates cannot be negative, and the term must be a positive number of years up to 100 that works out to a whole number of months (2.5 years is fine, 0.03 is not); otherwise no result appears. The variable loan is treated as one flat rate for the whole term, so there is no teaser period, no caps and no reset dates. A positive difference means the variable loan costs less interest; a negative one is shown with a minus sign and means the fixed loan does. The only payment shown is the fixed one. Fees and points are not included.

Common mistakes

• Entering the variable loan's starting (teaser) rate as the average. The field is the average you expect over the whole term; a low introductory rate that later resets will understate the cost.
• Entering the term in months. The field is in years, so 360 is over the 100-year limit and gives no result.
• Reading a positive interest difference as a guaranteed saving. It only holds if your rate assumption proves right, and the tool cannot test rates that rise and fall.
• Comparing loans that carry different fees or points. Only the interest rate is modelled, so a cheaper rate with big up-front charges can still be worse.
• Typing percentages as decimals. 6.5 means 6.5%; 0.065 is treated as 0.065% and makes borrowing look almost free.