Term loan fixed v variable

3% over base variable or 6% fixed for 2/5 years. What would you do?

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Any insights, it is a tough one. I am thinking variable? The accountant in me says fixed of course.

Replies (11)

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paddle steamer
By DJKL
04th May 2022 16:10

Is it two or five years, that would make a difference to my thinking?

The 6% fixed starts at 6% and remains at 6% from year one, the 3% over base variable may peak over 6% before term but for how many of the years?

If I fix for 2 years it is 6%, if two years with year one 4% average and year two 7% average I may be better on variable at an average 5.5%, but on five years I certainly would not.

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Replying to DJKL:
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By David Ex
04th May 2022 16:19

DJKL wrote:

Is it two or five years, that would make a difference to my thinking?

Yes, I thought that was odd.

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Replying to David Ex:
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By Munch
04th May 2022 21:32

The difference is only 2 basis points. It’s a business loan. Just interesting time to think about such an option.

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Replying to Munch:
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By David Ex
05th May 2022 00:32

Munch wrote:

The difference is only 2 basis points.

Base rate is 0.75% so your current difference is 2.25% which is 225 basis points.

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Replying to David Ex:
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By Munch
05th May 2022 12:23

The difference of 2 basis points is between the two rates quoted for 2 years and 5 years. It is 3% over base anyway which is 3.75%.

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Replying to David Ex:
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By Munch
04th May 2022 21:32

The difference is only 2 basis points. It’s a business loan. Just interesting time to think about such an option.

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Replying to David Ex:
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By Munch
04th May 2022 21:32

The difference is only 2 basis points. It’s a business loan. Just interesting time to think about such an option.

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Replying to David Ex:
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By Munch
04th May 2022 21:32

The difference is only 2 basis points. It’s a business loan. Just interesting time to think about such an option.

Thanks (0)
Replying to David Ex:
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By Munch
04th May 2022 21:32

The difference is only 2 basis points. It’s a business loan. Just interesting time to think about such an option.

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Replying to DJKL:
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By Munch
04th May 2022 21:36

Yep. I will be going variable as we do not intend to go past 2 years using the facility and crystal ball tells me we might hit 3% base rate but not today!

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Danny Kent
By Viciuno
04th May 2022 17:15

Depends what for, and how I was paying for it. For mortgages I'm fixed term all day, every day of the week. If I can afford it now, I'm pretty sure I will be able to afford it in 5 years. Especially if using rental income to pay, there might not be the scope to increase rents to a level where I keep making the same return. I'm happy to pay the extra for the piece of mind.

At those rates though, I assume this isn't a mortgage? I might be able to be convinced that variable rate is the way to go but it would take alot of convincing. I'd rather know where I stand. If it a loan just to buy something would a 0% CC be the way to go? Can then just switch every year to whatever company is offering a 0% switch.

Don't forget that the risk swings both ways as well. I'm currently locked into a fuel tariff for another 4 months that is significantly lower than the going rate.

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