When you are taking a loan your bank will give you to option to have a variable or fixed loan. A variable loan means that you'll have to pay back the parts of your loan with the interest percentage applicable at the current date. A fixed loan means that you'll pay back the parts at the interest rate which was applicable at the date you made the loan.

My question is: Are there still people who would take a variable loan instead of a fixed loan with the interest rate being really low and even close to zero? and why would they do that? Maybe the bank gives them a (false) forecast of a negative rate?

The reason I ask is, that if loads of people have taken a variable loan, they'll come into financial trouble because the rates will have to increase due to the explosion in inflation.

  • $\begingroup$ 1. This seems country specific, at least my fixed rate is not low. $\endgroup$
    – Giskard
    Feb 13, 2022 at 11:39
  • $\begingroup$ 2. Are you really asking if this service provided by banks is not used by anyone since 2022 started? $\endgroup$
    – Giskard
    Feb 13, 2022 at 11:41
  • $\begingroup$ @Giskard Yes that is exactly what I am asking. And more specifically the ratio of people using it. If only 5% of the loans closed were variable loans, the influence of a rising inflation rate would not be as severe as if 50% of the loans were variable. $\endgroup$
    – O'Niel
    Feb 13, 2022 at 18:19

2 Answers 2


My question is: Are there still people who would take a variable loan instead of a fixed loan with the interest rate being really low and even close to zero?

Micro data on lending is often not publicly available but there are empirical papers that examine variable interest rate loans such as variable interest rate mortgages being written as recently as 2019 (e.g. Albertazzi, Fringuellotti & Ongenaso, 2019). Hence clearly people are taking such loans otherwise those papers would be impossible to write.

and why would they do that?

Why not? Mortgage or other loan interest rates could go negative. Some people like to gamble, also any loan has to make sense for a bank, bank will reflect its expectation of what the interest rate will be in the future in the fixed rate it charges.

For example, in the US even despite interest rates being near zero the 30 year fixed interest mortgage interest rate was never below 2.5% (see Fred data). Variable interest rates are usually little bit lower (ex ante) because bank does not need to be compensated for the risk that interest changes. A priori one cannot say that fixed interest rate option is better for consumer than variable interest rate option (one can say that fixed interest rate is more safer option, in a sense that you are being protected against interest rate change risk).

Generally with fixed interest rate option you are purchasing not just the loan but also extra safety of having your interest rate fixed. This extra 'insurance' is not free gift from a bank to consumer, it has to be reflected in the price of their loan in one way or another (e.g. maybe as an extra fee if not in interest rate directly). When it comes to variable interest rate you as a consumer bear the interest rate change risk instead of bank, hence bank does not have to be compensated for this risk but you have to bear the risk.

It is all about risk preference. For example, here in the Netherlands where I live most people have bikes, since its common to bike here everywhere. However, not every person will take bike insurance even though bike theft is not uncommon. Some consumers are very risk averse so they will pay insurance for their bike some consumers are less risk averse or some even risk loving so they never take out insurance and some even get just one lock instead of 2 common here. There is no right answer which of the option is the best one, it all depends on the risk preferences of consumer.

  • $\begingroup$ Thanks for your answer. Are there any numbers available showing how many loans were variable? In e.g Belgium or the Netherlands? $\endgroup$
    – O'Niel
    Feb 13, 2022 at 18:22
  • $\begingroup$ @O'Niel not to my best knowledge, as mentioned in the text above this sort of household/bank level data is usually not publicly available I am sure dutch central bank (DNB) or the statistical office (CBS) has somewhere data on this because nowadays everything is recorded but to my best knowledge this sort of data is not made publicly available. $\endgroup$
    – 1muflon1
    Feb 13, 2022 at 20:43

Most regulations require banks to provide this data to the respective national competent authority (NCA).

Some EURO area data can be found here.

enter image description here

The original data, with newer values, should be found here.

In the US, you can look at the Mortgage Bankers Association. Ironically, the share of ARMs (adjustable rate mortgages) increased to 11 percent of overall loans and to 19 percent by dollar volume, as more borrowers continue to utilize ARMs to combat higher rates. You can also read about this on Bloomberg. As you can see, despite rising rates, there are actually more Americans willing to take out ARMs than before, mainly because a variable rate will (almost) always be cheaper to a fixed rate mortgage when you enter it.

In contrast, UK mortgage borrowers seem to be more cautious, as can be seen in chart 2 of this link. enter image description here

However, it is worth noting that UK mortgages frequently have a fixed term fixed rate that is shorter than the entire mortgage period, meaning in the medium run this can change for existing mortgages as well. The original data can be found here.


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