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Are variable rate loans ever a good idea?
What's going on here is that the variable rate loan is transferring some of the risk from the bank to you.  In a reasonable deal taking on risk brings with it reward.  It's the same thing as deductibles on insurance--they're transferring some risk to you and thus your expected total cost goes down. Thus the proper evaluation of such deals is whether you can afford the outcome if you draw the short straw.  If you feel you can afford the highest payment that can result then the variable rate is a good deal.  If you're near your limit then stay with the safe option of the fixed rate. For a house this is easy enough to evaluate--run the calculations assuming the highest payment and see what the debt-to-income ratio is.  Note that when we were getting mortgages there was another factor involved: the variable rate loans had a higher initiation cost.  Combined with the very low difference between fixed and ARM rates at the time we went fixed but given the rates you quote going variable would have been a no-brainer for us.