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Fixed vs Floating Rate Debt Calculator
Fixed and floating loans win different scenarios. This calculator compares total cost over hold period.
Fixed total interest
$3,250,000
Floating total interest
$3,500,000
Fixed savings
$250,000
How the math works
Fixed cost = balance × fixed rate × years. Floating cost = sum of annual coupons as index drifts.
Drift assumptions dominate. Each 25 bps of annual drift = ~$125k over 5 years on $10M. Model 0, +50, +100 bps drift paths to bracket the decision.
How to Use
- Enter balance and hold years.
- Enter fixed rate.
- Enter current floating all-in.
- Enter expected floating rise.
- Read total cost comparison.
Frequently Asked Questions
When floating wins?
Short holds (<2 years), declining rate environments, shorter-tenor opportunistic plays. Floating has prepay flexibility; fixed usually has heavy prepay penalties on early payoff.
When fixed wins?
Long holds (5-10 years), rising-rate regimes, sponsors with low risk tolerance. Fixed locks in known cash flow; avoids reset surprises and covenant renegotiations.
Hybrid?
Cap + floating approximates fixed at lower cost if rates stay flat. Consider convertible bridge-to-perm if timing uncertain. Lenders increasingly offer rate swap overlays on floating loans.
How does this interact with the rest of the capital stack?
Each tier of the stack affects the next. Senior debt constrains LTC and DSCR. Mezz and pref consume equity spread. Interest rate hedges protect DSCR but cost premium. Always model the full stack holistically — optimizing one tier alone often degrades another. Institutional underwriters run three or four scenarios across the stack before committing capital.
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