Fixed vs. variable rates: A cash flow analysis during an energy crisis

If you have a loan coming up for renewal, and/or are looking at taking out a new loan, you may be wondering how the war in Iran is changing the cost of borrowing – and whether a fixed rate or variable rate term might be best for your operation.

There are many different factors to consider when choosing between a fixed and variable rate. This includes, but is not limited to, the timing of capital investments (loans being paid off, when new investments will be required); product features, including prepayment limits and fees; cash flow and structure of existing debt, including existing floating debt exposure; and one’s own risk tolerance.

In this article, we’ll look differences between different types and lengths of terms from a purely cash flow perspective. While we will use scenario analysis to get a deeper understanding of the differences between these products, we won’t get into interest rate projections themselves – we’ll have more to say on that when our Economic and Financial Market Update is released next month.

5-year fixed rate terms have recently fallen out of favour with Canadians

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