Fixed or variable rate? Or both? Everything you need to choose the right farm loan

When you are thinking of going to your bank to finance a new investment, the question « what rate will I get on my loan? » is probably what will matter most to you in judging whether you have obtained the best financing terms.

Yet behind this notion of « rate » there are other things to consider: the rate will differ depending on the repayment period chosen, and it can also be fixed or variable, with very different characteristics. Your choice between a fixed and a variable rate can have a strong influence on the term and the total cost of the loan, each with its own advantages and drawbacks.

The difference between these two types of financing is fundamental, and the gap in instalments can affect your repayments and therefore your forecast safety margin. That is why it is wise to call on a specialist before taking out a loan if you are not comfortable enough with these financial matters.

What is meant by a fixed rate? How is a variable rate defined? What are the main differences between the two? These are the questions we will try to answer to guide you in your future investment.

The fixed rate

A fixed-rate loan is a loan whose rate is set from the start and does not change at all during the whole term of the loan.

The fixed rate is for borrowers who want to put security first. With a fixed rate there can be no surprises, since everything is set in advance.

Advantages of the fixed rate

A fixed rate gives you a precise idea of the cost of the loan from the start of the borrowing and throughout its term. The initial rate does not change until the loan is repaid. A fixed-rate loan can be renegotiated, or bought out by another lender as part of a loan buy-out. In agriculture, because only a limited number of banks are present on the market, buy-outs and rate renegotiations are often refused — but you should know that nothing prohibits them. The refusal comes from the banks' own policy of protecting their loan books.

So everything is known from the loan offer: not only the interest rate, but also the total cost of the loan (the sum of the interest paid to the bank), the repayment period and the amount of the instalments. The level of the fixed rate depends in particular on long-term rates, such as the 10-year French government bond (OAT).

Whether it is an amortising loan or a bullet (in fine) loan, either can be offered at a fixed rate, a variable rate, or in some cases a combination of the two. As the name suggests, a fixed interest rate means a fixed cost of credit and fixed interest throughout the term of the contract.

In addition, the borrower knows the instalments to be paid throughout the loan. These can increase over time, as described in the contract — for example by 2% every 5 years. It is also possible to adjust the amount of the instalments according to the borrower's income: this is known as a fixed rate with adjustable instalments (+ or – 30%, for example).

This adjustment option is far too often overlooked, yet it has many advantages! If you have large loans ending in the next few years, it can be wise to choose a longer investment term at the start and then increase your instalment once those large loans have been repaid. This will sharply reduce your cost of credit without making your annual repayments any heavier later on, while keeping lower instalments at the start.

Conversely, reducing your instalments lets you « make a bit of room » in your repayments if you run into cash-flow difficulties or need to fund a new investment. It can also be a way to obtain a lower rate (a 10-year rate will be lower than a 12-year rate, for example): since adjusting the instalments does not change the rate, after one year you can extend your term while keeping your initial rate.

Drawbacks of the fixed rate

A fixed rate does not let you benefit from any fall in market rates. In addition, early repayment charges may be due, to make up for the interest the bank will no longer receive. For a property loan taken out by an individual, French law caps them at the lower of two amounts: six months' interest on the capital repaid, at the loan's average rate, or 3% of the capital outstanding before repayment (Articles L. 313-47 and R. 313-25 of the French Consumer Code). For business loans, which include most farm loans, they are set freely by the contract: check them before you sign.

Variable rates

Also known as a revisable rate, a variable rate is a borrowing rate that changes at intervals set by the contract (often every year, on the anniversary of the loan).

A variable-rate loan follows the movements of the financial index to which it is linked. A variable-rate loan is generally cheaper at the start, but there is a risk when rates rise and it becomes more expensive than a fixed-rate loan. The variable rate moves according to a reference index, Euribor (Tibeur in French), the euro area interbank rate.

Euribor is a reference rate for the European interbank market: it represents the interest rate at which European banks lend each other money in the short term. Your interest rate will follow Euribor: if it rises, your interest rate goes up; if it falls, your interest rate goes down. Lenders sometimes use more exotic indices (foreign currencies, etc.). The interest rate is the sum of this index and the bank's margin, as stated in the loan agreement.

That is why, with a variable-rate (or revisable-rate) loan, the interest rate can change throughout the life of the loan. As a result, it is impossible to know the total cost of the loan in advance. The question, then, is how and why this rate changes!

The different types of variable rate

To limit these fluctuations, banks offer capped loans: the rate cannot move beyond a limit set in the contract, either upwards only, or both upwards and downwards.

A loan is said to be capped when the variable rate is limited upwards only, or both upwards and downwards, by a contract to plus 1, 2 or 3 points compared with the starting rate. Whatever happens on the market, the loan cannot then exceed the percentage set by the cap.

Example: the starting rate is 4.7% with a 2-point cap; the rate cannot go above 6.7%, nor below 2.7% if the fall is limited — if it isn't, the rate could even reach 0%. This shows the value of this formula: it adds useful security, especially on a long-term loan, while potentially lowering your cost of credit when borrowing rates fall or hold steady.

Capped instalments: the monthly repayment stays the same, but the term of the loan may be extended

A limit on rate changes, or a minimum rate change: the rate can only be recalculated according to certain criteria (no more than a 1% increase per year, for example).

Why choose a variable rate?

A variable rate lets you benefit from market movements, which is useful when rates fall. It very often avoids penalties for early repayment.

In addition, a variable rate is generally lower than a fixed rate, and this is often the main selling point put forward by banks. However, since the rate can rise, it only becomes worthwhile if the gap with the fixed rate is large.

When fixed rates are very high, you can reasonably hope for a fall. That is what happened to borrowers who took out variable-rate loans in the early 2000s. Fixed rates were then between 5 and 6%. Revisable rates were negotiated one point lower, and rates were still expected to ease.

So the choice depends on the context. When fixed rates are low, the appeal of a variable rate is mainly limited to short loans (5 to 7 years): the first years cost less than with a fixed rate (since the variable rate starts lower), and the limited term of the loan reduces the risk of paying a high variable rate for a long time.

Recent history shows that no scenario is guaranteed. After a long period of very low rates, rates rose sharply from 2022, and the European Central Bank raised its key rates again in 2026. A borrower on an uncapped variable rate saw their instalments rise accordingly.

If you don't want to take the risk of financing everything at a variable rate, you can optimise your cost of credit by mixing the two. For example, for a €150,000 investment project over 7 years, you could finance €100,000 at a fixed rate and €50,000 at a variable rate. This will lower the average rate of your financing at first, and then, if rates fall, you will optimise your cost of credit. Conversely, if rates rise, two thirds of your investment will be secured at a fixed rate, and by the time the variable rate is well above the fixed rate, you will have repaid a large part of the interest, which will limit the overall impact.

Drawback of the variable rate

Because the rate is variable, the borrower cannot know the total cost of their loan in advance.

A revisable rate does not give the borrower a constant rate throughout the loan. The rate fluctuates with market movements. The instalments also change during the loan, and the borrower only knows the total cost of the credit once it has been fully repaid.

At the start, this adjustable rate is lower than the fixed rate, but it rises or falls according to the reference indices. It is reset at the intervals set in the contract, often on the anniversary date. Depending on the contract, it may be possible to switch to a fixed rate during the loan (see below). A sudden rise in rates can have serious consequences for the borrower, which is why including a variable rate on an investment whose annual repayments will weigh heavily on the farm should only be done if you have sufficient repayment capacity. Choosing a variable rate to try to bring your instalments down a little because your repayment capacity is limited is definitely not the right answer!

Fixed or variable rate? Don't choose alone!

In short, a fixed rate is safer than a variable rate, but it can also turn out to be less financially attractive, since it is generally higher at the start.

Instalments on variable-rate loans often stay stable for the first year, or even the first two years.

And at the start of a loan, instalments are made up mostly of interest: a lower rate during those first years can therefore mean a real saving compared with a fixed rate, even if rates rise afterwards.

Don't hesitate to ask a specialist to run simulations for a fixed rate, a variable rate and a mix of the two, and to advise you according to the type of investment you want to make.

You must take full measure of all the risks if rates rise, and make sure that, if they do, you will be able to pay the maximum instalment.

If a clause in the contract allows it, the variable rate can be converted into a fixed rate. This change of rate type is then final. Converting your loan involves costs that must be taken into account when working out whether it is worthwhile: new arrangement fees, new security, early repayment charges…

The right choice of rate depends on several features of the loan. If your bank's fixed-rate offer is very close to its variable-rate offer, choose fixed: the hoped-for saving on the variable rate will not make up for the risk.

A fixed rate is recommended for a long-term loan because of the security it gives. A revisable rate is better suited to borrowers looking for a flexible loan that can adapt to low market conditions, and whose finances can cope with a rise in the rate.

Article updated in October 2026.

Sources (in French):

https://www.credixia.com/a-propos/questions-frequentes/quelle-difference-entre-taux-fixe-et-taux-variable

https://www.quechoisir.org/conseils-pret-immobilier-taux-fixe-ou-taux-variable-n3033/

https://immobilier.jll.fr/blog/article/la-difference-taux-fixe-et-taux-variable

https://www.acecredit.fr/fr/taux-fixe-ou-taux-variable.html

https://www.meilleurtaux.com/credit-immobilier/le-guide-de-l-emprunteur/pret-immobilier-taux-fixe-ou-revisable/bilan.html

http://www.rachat-de-credit-simulation.com/difference-entre-un-taux-fixe-et-un-taux-variable.html

https://www.legifrance.gouv.fr/codes/section_lc/LEGITEXT000006069565/LEGISCTA000032222295/

https://www.legifrance.gouv.fr/codes/section_lc/LEGITEXT000006069565/LEGISCTA000032807570/