How do variable mortgage interest rates work?

For many people, purchasing a home is one of the most significant financial investments they will make in their lifetime. In the Netherlands, like many other countries, one of the primary methods of financing a home purchase is through a mortgage. A mortgage is a loan obtained from a financial institution to buy a property and there are different types of mortgage interest rates available. Among them, variable mortgage interest rates are an option that appeals to certain borrowers due to their unique features and potential advantages.


In this blog, we will explore how variable mortgage interest rates work in the Netherlands, along with their pros and cons.

How Variable Mortgage Interest Rates Work:


A variable mortgage interest rate, also known as a floating rate or adjustable rate, is a type of interest rate that fluctuates over time in response to changes in the market interest rates set by the European Central Bank (ECB) or other benchmark rates. The rate can vary at specific intervals, which are usually determined by the mortgage provider, and can be influenced by economic conditions, inflation rates, and other factors affecting the financial markets.

Pros of Variable Mortgage Interest Rates:


  • Lower Initial Rates: One of the primary advantages of a variable interest rate is that it often starts lower than fixed-rate mortgages. This can be attractive to homebuyers, especially when market interest rates are relatively low. Lower initial rates mean lower initial monthly payments, making it easier for borrowers to manage their finances at the beginning of the mortgage term. Currently in the Netherlands we see that with most mortgage providers the variables rates are higher than fixed term rates, so called inverted rates.


  • Potential Savings: If market interest rates decrease over time, borrowers with variable mortgages can benefit from lower monthly payments without having to refinance their loans. This potential for savings can be advantageous, particularly for those who plan to stay in their homes for a shorter period.


  • Flexibility: Variable mortgage interest rates offer borrowers more flexibility than fixed-rate mortgages. If a homeowner expects interest rates to decrease in the near future, a variable rate can be a suitable option.


  • Early Repayment: Variable mortgage loans often allow borrowers to make early repayments without incurring significant penalties. This feature provides more freedom for borrowers who may wish to pay off their mortgages sooner, reducing the overall interest paid.

Cons of Variable Mortgage Interest Rates:


  • Uncertain Payments: The most significant drawback of a variable interest rate is its uncertainty. Monthly payments can fluctuate, making budgeting and financial planning more challenging for borrowers, particularly those on fixed incomes or tight budgets. A sudden increase in interest rates could lead to substantially higher monthly payments.


  • Less borrowing capacity: due to the extra risk element a variable interest rate allows you to borrow less on your income than with a interest fixed term of 10 years or more. If you are buying well within your budget this does not matter much, but for clients looking to borrow on their limit it does.


  • Potential Higher Rates: While a variable interest rate can start lower than fixed rates, there is also the risk that it could rise significantly over time. This could lead to higher long-term costs for the borrower compared to a fixed-rate mortgage.


  • Market Volatility: Variable mortgage interest rates are directly linked to market conditions and are influenced by external factors that borrowers cannot control. Economic changes, inflation, or global events can lead to unpredictable fluctuations in interest rates.


  • Psychological Stress: The uncertainty surrounding variable rates can cause stress and anxiety for some borrowers, especially those who prefer stable and predictable financial arrangements.


  • Limited Options: In the Netherlands, variable mortgage interest rates are less common compared to fixed-rate mortgages. As a result, borrowers may have fewer mortgage providers and products to choose from when opting for a variable rate.



Variable mortgage interest rates in the Netherlands can be an appealing option for certain borrowers due to their potential for the opportunity for savings if interest rates decrease. However, these advantages come with the trade-off of uncertain payments and the possibility of higher rates in the future. Before choosing a mortgage type, prospective homebuyers should carefully assess their financial situation, risk tolerance and future plans to determine whether a variable interest rate aligns with their needs and preferences.


Seeking advice from our mortgage advisors can be beneficial in making an informed decision. Remember, regardless of the chosen mortgage type, responsible financial planning is key to successful homeownership.

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