Fixed or Floating Interest Rate for a Mortgage: The Ultimate Guide and Market Analysis (2026)
Retrospective and Market Context Over the last three years, the Bulgarian credit market has moved through distinct phases. While 2023 was dominated by global inflationary uncertainty and 2025 focused on the technical transition to the Euro, 2026 has shifted the spotlight to the banking sector’s exceptional liquidity. Despite these changes, one fundamental question remains for every borrower: “Should I choose a fixed or a floating interest rate?”
To provide clarity, we speak with Maria Petkova, owner and Managing Director of Creditchoice Ltd., who analyses the situation from the front lines.
Fixed or floating interest rate for Housing and Mortgage Loans – which one should I choose?
Interview with Maria Petkova, Owner and Manager of Credit Choice Ltd.
Which type of interest rate is more preferred in Bulgaria?
Clients often have to make this choice for residential or mortgage loans. In Bulgaria, the trend is for loans to be issued with floating rates; according to our observations, this accounts for 95% of them. The reason clients choose a floating interest rate is that it is lower.
What is the difference between a fixed and a floating rate?
The difference between a floating and a fixed rate can be 0.8%-1%, with the floating rate being the cheaper option. On the other hand, a fixed rate provides security because the bank locks in the rate in the loan agreement for a specific period (3, 5, or 10 years). This means that neither the bank nor you, as the client, have the right to change it during the fixation period. If lower interest levels appear on the market, you cannot change your contract with the bank; you can only go to another bank and refinance.
How is the floating rate calculated?
All commercial banks in Bulgaria link the loan interest to a market index. After joining the Eurozone, the expectation was that the market index for all banks would be the EURIBOR, but that did not happen. Most banks chose to keep market indices linked to citizens’ term deposits in Bulgaria. This is a factor that helps maintain low interest rates on loans. Why? After the last quarter of 2025, a very strong increase in household deposits at banks has been observed. In the last months of 2025 alone, approximately 7 billion BGN were deposited in banks. Total deposits held by citizens and companies at the end of 2025 are around 150-160 billion BGN, accounting for 48% of Bulgaria’s Gross Domestic Product.
This means the banking system in Bulgaria has a lot of money that banks want to distribute as loans, as this is their primary profitable product. They do not need to collect more deposits, and if they decide they want to do so, they will raise deposit rates. Then, loan rates will also increase. But as we’ve learned, there is plenty of money in the system, and there is no reason for banks to increase interest rates. Simply put, until banks “spend” this money on loans to citizens, they will not need new resources and, accordingly, will not increase this index. Therefore, loans with floating rates will remain at low levels.
Another reason there is so much money in the banking system is that, in the past, banks were required to provision significant amounts for every loan. That is no longer the case. This is also money that entered the system and was released in a way that allows it to be distributed as loans. At this stage, there is no observed risk of a sharp increase in floating rates, and it seems unjustified to pay a higher rate just to fix it.
One drawback of floating rates is that the bank cannot change them at will. The variable part of the interest is the index, which I’ve already explained. The other part of the interest is the bank’s margin, which is the larger part of the annual interest; the bank enters this margin into the loan agreement, where it is fixed for the entire duration of the loan and does not change. Your loan interest can change, in part, based on the market index, but the bank cannot change the margin on floating rates, which provides a high degree of security.
Why are banks currently promoting fixed rates?
Of course, the market is volatile. There are other factors at play, and if you are more conservative, you can opt for a fixed-rate loan for peace of mind. Currently, we see a trend of banks offering these. This is somewhat related to trends in Europe. There, a much larger share of loans is taken with fixed rates, and to some extent, this influences the Bulgarian market as a trend. However, higher interest rates on fixed loans lead clients to choose floating-rate loans. Overall, the banks’ forecast for a favourable environment is that they will be over-liquid for at least another 3 years. We do not observe a high demand for fixed rates, but banks are offering such deals for 3, 5, and 10 years.
It is important to know that when the fixation period for your loan expires, the new rate will become floating, but it will not be the same as if you had originally taken a floating rate; it maintains the levels of the fixed rate, meaning the loan remains more expensive even with a floating rate. After the fixation period, you switch to a floating rate with a higher interest rate. It is advisable to consult whether there are better offers on the market at that time, which we, as credit consultants, are always kept up to date on.
Can I prepay the loan or part of it if it has a fixed rate?
Another important thing regarding the fixation period is that banks have the right to apply a prepayment fee during the entire term of the fixation. Whether they actually apply it is not certain, but they have the right. If you fix your loan for 36, 60, or 120 months, the bank has the right to impose a 1% fee when you prepay—partially or fully. In contrast, for loans with floating rates, the law limits banks to the first 12 months during which they may impose a prepayment fee, again at 1%.
Conclusion
Ultimately, if you take out a floating-rate loan and interest rates start to rise only at your specific bank, you can always switch banks and be at a lower interest rate again. If they start to rise in the entire market, this will be for everyone. But there is hardly a bank that would offer you a fixed interest rate of 3.5% for 3 years and predict that interest rates will rise by more than 3.5%. In my opinion, it is not justified, but if you do not take the risk, for your peace of mind, take out a fixed-rate loan.
Analysis: What Have We Learned from 2023–2025?
To complement Mrs Petkova’s expertise, we refer to our archives and thousands of consulted cases at Creditchoice Ltd.:
- The Evolution of Interest Levels: In 2023, the gap between fixed and floating rates was narrower. Today, we see that the Bulgarian market has managed to insulate itself from European shocks due to the massive deposit base (150-160 billion BGN), making floating rates historically resilient here.
- Flexibility and Costs: Our 2025 analysis confirms that consumers often underestimate the “price of peace of mind.” A fixed rate is insurance. Like any insurance, it comes with a premium (higher percentage) and conditions (prepayment fees).
Conclusion and Practical Advice
At Creditchoice Ltd., we believe there is no “bad” interest rate—only an “unsuitable” one for a specific person at a specific time. Based on Maria Petkova’s current analysis and historical data, the conclusions for 2026 are:
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Floating rates remain the most advantageous option for those seeking low instalments and who believe in the stability of the Bulgarian banking system.
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Fixed rates are your choice if the predictability of costs is more important to you than their absolute value.
Important: Whatever choice you make, remember that a mortgage is a long-term partner. We are here to monitor the market for you and signal when it is time to renegotiate or refinance.
Your decision starts with a free consultation.
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