Variable (adjustable) rate
A rate indexed to a market reference (often Euribor) that moves up or down at contractual intervals. It usually starts lower than a fixed rate but exposes the borrower to rising installments. It is often secured with a 'cap' that limits how far it can move.
Key points
- Indexed to Euribor, a variable rate moves at each contractual review date.
- The starting rate is usually below a fixed rate, reducing the initial installment.
- Without a cap, a sharp rate rise can significantly increase monthly payments.
- The broker must check the review frequency and the contractual reference index.
Frequently asked questions
How does a variable rate revision work?
At each contractual review date, the bank recalculates the rate by adding a fixed spread to the current value of the reference index (often the 3- or 12-month Euribor). The monthly installment or the remaining term is then adjusted accordingly. The contract specifies whether the installment or the term absorbs the change.
When is a variable rate more advantageous than a fixed rate?
A variable rate makes sense when the borrower plans to sell or repay early within a short horizon, benefiting from the low start without enduring a long risk period. It may also suit borrowers who expect market rates to fall over time. The broker should quantify the potential gain against the risk of an increase.
What is the difference between a pure variable rate and a capped rate?
A pure variable rate follows the index with no limit: the installment could theoretically double if markets spike. A capped rate adds a contractual clause limiting the maximum upward (and sometimes downward) movement, providing explicit protection. In practice, most French banks only offer capped variable rates.
In practice
On a €200,000 loan at Euribor 3-month + 1.20%, if Euribor moves from 2.50% to 3.80%, the monthly installment rises by roughly €130, illustrating the direct impact of a revision without a cap.
Official sources
- Getting a mortgage (variable rate) · Service-Public.gouv.fr
- Fixed or variable: which rate to choose? · economie.gouv.fr
- The annual percentage rate (APRC) · Service-Public.gouv.fr