Guide
Fixed vs variable-rate mortgage: how much can your payment move?
The mortgage rate is the one input that can change after you sign. A fixed rate stays the same for the period written in your contract. A variable (or floating) rate is tied to a market rate and moves with it, so your monthly payment can go up or down. This guide shows how much the payment moves, when a cheaper start rate stops being cheaper, and how the two types are priced in some regions (for example Hong Kong and the US).
You can reproduce the payment figures in the mortgage calculator: set “What I know” to Loan amount, enter 400,000 and 30 years, and change only the rate. For the underlying formula, see how mortgage payments are calculated. The term question is covered in 15 vs 30 year mortgage.
What is the difference between a fixed and a variable rate?
- Fixed rate: the interest rate is set when you take out the loan and does not change for the fixed period. The US Consumer Financial Protection Bureau describes it as a rate that “will not change”.
- Adjustable or variable rate: the rate “may go up or down”. In the US, an adjustable-rate mortgage (ARM) is tied to an index plus a margin the lender adds, and may start with a lower introductory rate that holds for months or years, then change at regular intervals. Some ARMs cap how high the rate can rise at one time or over the life of the loan.
- In some regions (for example Hong Kong): the HKMA says mortgage rates are mostly priced against HIBOR or the Prime rate, both floating. HIBOR-based plans usually have a cap on the rate; Prime is steadier, but each bank’s Prime is different.
A fixed rate is a way of buying certainty. Whether it is worth the price depends on the gap between the fixed and the variable start rate, and on how far the variable rate moves.
How much does the payment change if the rate changes?
The worked example is the same loan used in our other mortgage guides: 400,000 over 30 years at 6%, with a monthly payment of 2,398.20. The table shows the payment if the rate were different from the start and stayed there for the whole term. It is a sensitivity table, not a forecast.
Monthly payment M = P × r × (1 + r)^n ÷ [(1 + r)^n − 1], where P is the loan, r is the annual rate ÷ 12 and n is the number of months.
| Rate | Change | Monthly payment | Difference from 6% | Total interest |
|---|---|---|---|---|
| 4.0% | −2.0 points | 1,909.66 | −488.54 (−20.4%) | 287,478.03 |
| 5.0% | −1.0 point | 2,147.29 | −250.92 (−10.5%) | 373,023.14 |
| 5.5% | −0.5 point | 2,271.16 | −127.05 (−5.3%) | 417,616.16 |
| 6.0% | fixed | 2,398.20 | 0.00 | 463,352.76 |
| 6.5% | +0.5 point | 2,528.27 | +130.07 (+5.4%) | 510,177.95 |
| 7.0% | +1.0 point | 2,661.21 | +263.01 (+11.0%) | 558,035.59 |
| 8.0% | +2.0 points | 2,935.06 | +536.86 (+22.4%) | 656,620.99 |
A rise costs more than an equal fall saves: the 2-point rise adds 536.86 a month, while the 2-point fall removes only 488.54.
When does a cheaper start rate stop being cheaper?
A common variable or adjustable product starts below the fixed rate and then resets. Suppose a plan starts at 5.5% for five years against a 6% fixed rate. The start saves 127.05 a month, or 7,622.77 over five years. After five years the balance is 369,842.41, and the payment is recalculated at the new rate over the remaining 25 years.
| Rate after year 5 | Payment after reset | Jump from the first 5 years | Total paid over 30 years | Versus 6% fixed (863,352.76) |
|---|---|---|---|---|
| 5.5% (unchanged) | 2,271.16 | 0.00 | 817,616.16 | −45,736.59 |
| 6.5% | 2,497.20 | +226.05 | 885,430.10 | +22,077.34 |
| 7.5% | 2,733.10 | +461.95 | 956,200.20 | +92,847.45 |
| 9.5% | 3,231.30 | +960.14 | 1,105,659.61 | +242,306.85 |
The break-even rate is about 6.18%: if the rate after year five averages below that for the remaining 25 years, the variable plan costs less in total; above it, the fixed plan wins. The saving in the first five years is small next to what a sustained rise can cost.
These totals are undiscounted and assume the rate holds steady after the reset. Real rates move every period, and the reset path depends on the contract. The 7.5% row is a rise of 2 points above the start rate; check whether your plan’s cap would allow that, or more.
How do fixed and variable loans work in Hong Kong?
The HKMA mortgage page lists the two usual formulas. A HIBOR-based plan charges HIBOR plus a certain number of percentage points, or the plan’s cap if there is one, whichever is lower. A Prime-based plan charges the bank’s Prime rate minus a certain number of percentage points. Both move when the underlying rate moves. The HKMA page does not describe a whole-term fixed plan, so treat the fixed column in this guide as a benchmark and ask your bank which fixed options it offers.
To see the stakes in Hong Kong dollars, take HK$5,000,000 over 30 years at 3.5%, which is the loan in our Chinese-language mortgage guides:
| Rate | Monthly payment (HK$) | Difference from 3.5% |
|---|---|---|
| 3.0% | 21,080.20 | −1,372.03 |
| 3.5% | 22,452.23 | 0.00 |
| 4.0% | 23,870.76 | +1,418.53 |
| 4.5% | 25,334.27 | +2,882.03 |
| 5.5% | 28,389.45 | +5,937.22 |
A cap bounds the damage. If a plan’s cap were 5.5% and the rate sat at the cap from day one, the payment on this loan would be 28,389.45. Ask yourself whether you could pay that if your income fell. The HKMA also warns that some promotional plans from non-bank lenders look attractive at the start but can see the rate and payment rise significantly after the initial years. The HKMA’s own mortgage repayment calculator shows the effect of a rate change on your payment and your debt servicing ratio.
How do fixed and adjustable loans work in the US?
Freddie Mac’s Primary Mortgage Market Survey reports weekly averages for fixed-rate loans. As of 8 October 2026 the 30-year fixed-rate mortgage averaged 7.40% and the 15-year averaged 6.73%. Freddie Mac no longer publishes adjustable-rate averages in the survey, since the mortgage market has been dominated by fixed products and its data moved to a new source in November 2022, so use lender quotes for the ARM side.
A typical ARM starts at a lower introductory rate. After that, the rate resets at a regular interval to the new index plus the margin, subject to caps, and the payment is likely to go up. The CFPB’s advice is not to assume you can sell or refinance before the rate changes: your property value or your finances could change. Before choosing, ask how high the rate can go at each adjustment and over the loan’s life, how often it adjusts, and whether you could still afford the loan at the maximum.
What the mortgage calculator cannot model
- Rate resets. The calculator uses one rate for the whole term. To test a reset, run the first period with the start rate, then run the remaining balance and remaining years at the new rate, as the table above does.
- Caps and floors. The calculator does not apply a cap on the rate or on how much it can change at once.
- Fees and penalty periods. Legal, valuation and early-repayment charges are not included.
- Changing rates every period. Real floating rates move month to month.
- Taxes and insurance. Property tax, insurance and other costs are outside the calculation.
A checklist before you choose
- Ask for the rate formula in writing: start rate, index, margin, cap, and the date of the first reset.
- Run the payment at your start rate and at least 2 points higher in the mortgage calculator. If the higher payment would break your budget, a fixed plan or a shorter exposure may suit you better.
- Work out your break-even rate, not just the saving on day one.
- Ask what it costs to switch plans or refinance, and whether a penalty period applies.
- Keep a cash buffer outside the mortgage.
FAQ
Is a fixed-rate mortgage always safer than a variable-rate one?
It is safer for budgeting, because the payment cannot rise during the fixed period. It is not automatically cheaper: you usually pay for that certainty through a higher starting rate, and if market rates fall you keep paying yours unless you refinance. Safer and cheaper are different questions.
Can I switch from a variable rate to a fixed rate later?
Often yes, but not for free. Switching usually means asking your lender to change the plan or refinancing with a new lender, which can bring valuation and legal fees, a new rate based on market conditions on that day, and possibly an early-repayment charge. Check the fees and any penalty period in your loan documents first.
What does a rate cap actually protect me from?
A cap limits how high the rate, and so the payment, can go under the plan, and Hong Kong HIBOR-based plans are commonly written as HIBOR plus a margin or the cap, whichever is lower. It does not make the loan cheap: the cap may sit well above the starting rate, and you can still pay the capped rate for years.
How do I know whether fixed or variable will cost less?
Nobody can know in advance, because it depends on where rates go. What you can do is find the break-even rate: how far a variable rate can rise after the cheaper start before the total cost passes the fixed loan. In our example that is about 6.18% against a 6% fixed rate, and you then judge whether that is likely and whether you could afford the payment if it is exceeded.
Sources
Checked on 2026-10-10. All payment, interest and break-even figures are recomputed with the standard annuity formula, matching the mortgage calculator’s monthly method.
- HKMA, Mortgages (HIBOR- and Prime-based pricing formulas; HIBOR-based caps; tenor and promotional-plan warnings; mortgage repayment calculator)
- Freddie Mac, Primary Mortgage Market Survey (30-year 7.40% and 15-year 6.73% as of 8 October 2026; ARM averages discontinued November 2022)
- US Consumer Financial Protection Bureau, What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan? (last reviewed 14 January 2025)
This article explains the maths for general education. It is not financial advice or a loan offer. Check your lender’s documents for the real terms. See the disclaimer.