Mortgage rate adjustments in the UAE
For new home buyers seeking to finance their properties in the UAE, there are two types of mortgages: a variable interest rate mortgage that is effective from day one, and a fixed interest rate mortgage that is effective for one year, three years, or five years, followed by a variable interest rate when the fixed rate expires.
All borrowers should, therefore, understand how the EIBOR affects interest rates and the implications these fluctuations have on their monthly payments and mortgage rate so that they can effectively plan and manage their finances.
Mortgage rate adjustments
In the UAE, the Emirates Interbank Offered Rate (EIBOR) serves as a benchmark interest rate for loans between banks or as a reference rate for borrowers and lenders to conduct financial transactions such as mortgages and personal loans. If you’re interested in learning more about EIBOR, read our blog on the topic.
In the event that the EIBOR rate goes up, people will see an increase in their monthly payments, and in the event that it goes down, they will see a decrease in their monthly payments. Variable rate mortgages and reversion rates will be the first to feel the effects of EIBOR fluctuations. The impact of interest rate changes on borrowers with fixed-rate mortgages is generally not felt until after the fixed-rate period is over. For more information on the advantages and disadvantages of fixed versus variable mortgage rates, click here.
EIBOR is linked to your mortgage rate, which is adjusted every 1 or 3 months. This means that if your mortgage is variable-rate, it will increase every month or every 3 months. A fixed-rate mortgage is protected from rate increases for the fixed period (1-5 years), but once it switches to variable, it can increase significantly.
Current and future trends
During the past 12 months, UAE mortgage rates have increased by 4%, driven by the 3M EIBOR. In addition, the Central Bank is expected to continue raising EIBOR through 2023 to resist inflation. Therefore, staying on top of trends is extremely important.
What is the reason for this increase? In the last of their eight regular meetings this year, the FOMC (The Federal Open Market Committee) raised interest rates to their highest level in 15 years of 4.25-4.50 percent. As GCC central banks follow the Fed's policy rate moves due to their currencies being pegged to the US dollar, they have also raised the base interest rates after Fed's final increase of the year.
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What can you do?
As the economy and the market become more uncertain, our mortgage advisers can help you make sense of the information and find the best mortgage and rate for your needs. Contact us and get professional advice, personalized mortgage offers, online pre-approval letters, and guidance through the entire process. In addition to being knowledgeable of the UAE real estate market, the team has a wealth of experience finding mortgage options for UAE nationals, expats, and non-residents alike. Also, feel free to use our mortgage calculator and get an estimate of what your mortgage costs could include based on the apartment features of your choosing.
If you're just beginning the process of buying a property, we also have a platform with thousands of apartments and villas from Dubai's most prominent developers. Search the website for a property by developer, community, building, price, number of bedrooms, location, property type, completion status, size, etc. or get access to all property information by registering here.
We have a number of blogs that can provide you with more information on mortgages in the UAE on topics like: mortgage pre-approval letter, mortgages for self-employed borrowers, mortgage down payment and mortgage prepayment, and mortgage processing fees in the UAE.
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