11+mortgages

Fixed Versus Variable Rates

Compare a fixed-rate and variable-rate mortgage by explaining the certainty versus flexibility trade-off — and identify which is more appropriate for a borrower with a given income stability profile.

In this lesson

Fixed Versus Variable Rates is part of Understanding Home Financing. This preview shows how mortgages connects to everyday family decisions such as earning, saving, spending choices, goals, approvals, or parent-guided money conversations inside Progress Penguin.

Think about this money choice

Chukwu is choosing between a fixed-rate mortgage and a variable-rate one. The variable rate is lower right now but could rise.

How it works

A fixed-rate mortgage charges the same interest rate for the entire term, regardless of market rate movements. A variable-rate mortgage (also called floating or tracker) moves with a reference rate — when market rates rise, the payment rises; when they fall, it falls. Fixed rates provide certainty at a typically higher starting rate. Variable rates offer lower starting payments but with the risk of increases if market rates rise.

Apply it to a real decision

Real-life money moment: Chukwu is choosing between a fixed-rate mortgage at 19% and a variable rate currently at 16%. The variable is cheaper now — but if the central bank raises rates by 4%, his variable rate becomes 20% — more than the fixed option. His fixed rate stays at 19% regardless. He chooses fixed because his income is stable but not flexible enough to absorb payment increases comfortably.

Activity preview

Test the trade-off

Use the lesson to complete this short practice activity.

Try one real money action

Open Tasks and submit proof for one task, or open Requests and make a deposit request. Parent approval can happen later.

Quiz preview

Fixed versus variable mortgage rates differ because:

Variable rates are set by the borrower while fixed rates are set by the government

Fixed rates stay the same throughout the term; variable rates change with market conditions

Fixed rates are always lower than variable rates regardless of market conditions

Fixed rates apply only to the first year while variable rates apply to the remainder

A fixed mortgage rate of 18% for five years means:

Your rate is reduced to 18% after the first year of paying the standard market rate

Your rate is reviewed every five months to ensure it remains at 18%

You pay 18% interest only in months where the central bank rate is below 18%

Your monthly payment is constant for five years regardless of market rate changes