Should I fix my rate if interest rates might rise?

2 min read

Fix = protectionAgainst rises

Small premiumCertainty costs a little

Miss the fallsIf rates drop

Depends on headroomCan you absorb a rise?

What fixing gives and costs

Fixing your rate locks the payment for the term, so a rise in the base rate cannot touch you. That certainty is valuable when cash flow is tight — you can budget to the penny. The cost is twofold: fixed rates often carry a small premium over the equivalent variable, and if base rates fall you do not benefit. You are buying insurance against a rise and paying for it in both ways. See fixed or variable.

The question that decides it

The useful question is not 'will rates rise' — nobody knows — but 'could my business absorb it if they did'. If a rate rise would turn a comfortable payment into a strained one, the certainty of fixing is worth the premium. If you have ample headroom and could shrug off a rise, the flexibility and potential saving of a variable rate may suit you better. Match the choice to your cash-flow resilience, not to a forecast.

Stress-test before you choose

Whichever way you lean, model a higher rate on the repayment calculator and see what your payment becomes. If the stressed payment is uncomfortable, that is a strong argument for fixing. Also check whether a fixed deal carries an early repayment charge, as fixed rates more often do — relevant if you might repay early. See what happens if rates rise.

Decide with the numbers in front of you, then apply for the structure you have chosen.

Frequently asked questions

Is a fixed rate always safer?

Safer in the sense of certainty, yes — your payment cannot rise. But 'safer' is not free: you usually pay a small premium and forgo any benefit if rates fall. For a business with tight cash flow, that certainty is worth it. For one with ample headroom, the flexibility of a variable rate may be the better trade. Safety here means predictability, which suits some situations more than others.

What if rates fall after I've fixed?

You keep paying the fixed rate, so you miss the saving a variable borrower would enjoy. That is the price of the certainty you bought. If rates fall far enough, refinancing onto a new, lower fixed rate might make sense, but a fixed deal may carry an early-repayment charge that offsets the gain. Weigh the certainty you valued against the possibility of missing a fall before fixing.