Fixed or variable mortgage rate: how to choose

The home is found, pre-approval is ready, and soon the contract is signed. Then comes one of the bigger questions: fixed or variable rate on the mortgage?

No answer fits everyone. But an answer fits you. Here we go through the difference, what the words mean, and which questions to ask yourself. No economics degree needed to follow.

Variable and fixed rates: what is the difference?

Variable rate is usually called three-month rate. It follows the Riksbank policy rate and the market fairly closely. The rate resets every three months. That means your monthly cost can rise or fall during the year.

Fixed rate locks the cost for a set time. You can fix from one year up to ten. Most common are one, two, three or five years. That time is called the fixed-rate period. During it you know exactly what you pay each month, whatever happens on the rate market.

Peace of mind has a price. Fixed rates usually sit a little above variable. And repaying early, the bank may charge a fee. More on that below.

List rate and average rate: read the fine print

Comparing banks you meet two figures. Easy to mix them up.

The list rate (listränta) is the bank’s official shelf rate. Rarely what you actually get. Almost all customers negotiate their rate down, and the discount depends on how much you borrow and what share of the home’s value the loan is.

The average rate (snitteränta), the actual rate, is the average of what the bank’s customers really pay. Banks must report their average rate monthly. That is the figure to compare between banks, not the list rate. Otherwise you compare apples with pears.

So always ask for the actual rate you are offered, and check the bank’s average rate before deciding.

Three questions that decide your choice

How stable is your income? With secure permanent employment you handle variable-rate swings better. Self-employed, recently changed jobs, or in a more uncertain situation, a fixed rate can bring calm. You know what leaves each month.

How big is your buffer? With savings handling rates rising a couple of percent for a year without tightness, variable rate has historically often been cheaper long term. Lacking that margin, peace of mind should weigh heavier.

Planning to sell within a few years? Fixing long and selling early, the fee for repaying can sting. Staying put long, that risk is smaller.

Rate-difference compensation on early repayment

This word is long but important. With a fixed rate, repaying before the fixed period ends, for example because you sell or move the loan to another bank, the bank may charge rate-difference compensation (ränteskillnadsersättning).

The idea is compensating the bank if rates fell since you fixed. If rates dropped since you signed, the fee can grow large. If they rose or stood still, it is often small or nothing at all.

Variable rates lack this problem. You can usually repay at no extra cost. Unsure about staying put, worth keeping in mind.

Splitting the loan: a common middle way

You need not pick either-or. Many split the mortgage into parts with different fixed periods. For example a third variable, a third fixed two years, a third fixed five years.

Then the whole loan never expires at once. You skip the risk of having to refix everything at once just when rates happen high. You get some predictability in the monthly budget yet can still gain if rates fall. A decent mix of safety and flexibility, simply.

No answer key, only what fits you

Nobody knows where rates head. Whoever fixes does it for calm, not to guess right. Whoever picks variable takes a risk but often pays less over time. Both choices are reasonable. It is about your finances and how you sleep at night.

And remember one thing. Have the interest cost clear in your calculation before deciding on a home, not after. When you register your buying brief on SökHem you start from your actual budget, and the system finds places fitting it, even with sellers who have not listed yet. Then no falling for a home you must count backwards to afford.