UAE Mortgage

What to consider if your fixed rate is coming to an end

Author: Milanka Mitic

Publish date: 04 May 2023

Several things need to be considered when your fixed rate is coming to an end. We have gathered the five most important points to take into consideration if you are in, or anticipate being in, this situation.

What to do if your fixed rate is coming to an end?

You could be faced with a significant increase in your mortgage payments if your fixed rate ends. Once your fixed-rate mortgage ends, you have several options for advancing your mortgage.You can switch to your existing lender's Standard Variable Rate (SVR), switch to a new mortgage contract with your mortgage provider, or remortgage with a different mortgage lender.

Here are the five things you should consider:

When is the right time to remortgage?
Examine the cost of doing nothing
Take a look at the current mortgage rates
Pay more attention to your budget
Select a mortgage type that meets your needs
Next steps - speak to an expert

Now, let’s dive deeper into each of these aspects.

When is the right time to remortgage?

The first thing you need to do is determine when your fixed mortgage deal ends. The majority of lenders allow you to sign up for your next mortgage three to six months in advance, hence, it is much better to start your remortgage search as soon as you are aware of its end.

Examine the cost of doing nothing:

A SVR (Standard variable rate) is usually the most expensive mortgage rate. That is one of the reasons you should consider alternative rates when your deal finishes, and It might not always be the best option to consider remortgaging to another fixed-rate (you might move, etc.).

Take a look at the current mortgage rates:

Following the USA Federal Reserve Board’s announcement on 03 May 2023, the base rate has jumped by 25 basis points - from 4.90% to 5.15%. This is following a series of base rate increases since the beginning of 2022. However, there is hope that more lenders will introduce lower fixed rate options.

Pay more attention to your budget:

Bearing in mind that the repayment period in the UAE is capped at 25 years, it is important to take into account that your fixed rate period (and consequently your monthly rate) will end and become a variable rate. It is essential to note that additional costs will appear and it is important to know how to cover them.

Select a mortgage type that meets your needs:

According to their changeability during the repayment period, there are three basic types of interest rates:

Fixed interest rate
Variable interest rate
Mixed or combined interest rate

Fixed interest rates

When it comes to fixed interest rates, they are regulated while signing a contract and are not prone to any changes during the duration of the payment period. At first, it seems to be an attractive option since you would have the same installments during the entire payment period. However, there is a catch. Banks themselves do not know what the future holds, fixed interest rates are usually offered in the first 1 to 5 years of the payment period. (This results in creating a mixed interest rate, which will be further discussed in the third section). In addition to this, in order to protect themselves from higher interest rates, banks usually ask for a higher interest rate for loans with a fixed interest rate. Banks in the UAE generally do not offer mortgages that are fixed for the entire loan term. You can contact us and use our fixed interest rate mortgage calculator to calculate your monthly installments.

Variable interest rates

Variable interest rates are determined on the basis of key policy rates by adding appropriate interest spreads.The Emirates Interbank Offered Rate or EIBOR is the benchmark interest rate by which banks lend to each other. It acts as a reference rate that’s used when determining interest rates for financial transactions such as mortgage loans. It is tricky to use variable interest rates since in case of any rise in key policy rates during the payment period, the installment amount increases as well.

Mixed or combined interest rate

Mixed or combined interest rate is the most flexible one since it gives the loan user a sense of freedom while making their own payment plan.This approach can vary depending on the country and the bank. The usual case is that the client and the bank sign a contract with a fixed repayment period (for example 3 years) and a variable one afterwards. Most banks in the UAE offer a fixed mortgage rate for a period between 1 and 5 years, after which it switches to a variable rate. This type of interest rate is good for people who want to have a predictable fixed repayment in the beginning, and then repay their loan prematurely.

Here is a brief overview of all of them in a table:

	Fixed interest rate	Variable interest rate	Mixed interest rate
Description	The same installment rate during the entire repayment period. Both the interest rate and the installment rate are fixed.	The monthly rate and the interest rate change throughout the repayment period. The interest rate is composed of two parts:key policy rates and interest spreads.	The monthly rate and the interest rate are fixed in the initial repayment period. After that period, they are prone to changes as the key policy rate changes.
Example	5.85 fixed interest rate	1.49% fixed margin + 5.208% (3-month EIBOR)	5.69% fixed for the first 3 years with a reversion rate of a 1.75% fixed margin + 5.208% (3-month EIBOR)
Monthly installment	Fixed during the entire repayment period	In case EIBOR grows, the monthly installment grows as well.	In case EIBOR grows, the monthly installment grows as well.
Advantages	Provides a clear understanding of the monthly installment rate	In case EIBOR stays low in the long run, they will probably appear as a cheaper option.	Gives the possibility of repayment on the basis of fixed interest rates and monthly installments in the agreed period.
Disadvantages	The interest rate is usually higher than the variable one, hence, the monthly installment is higher.	It is very difficult to foresee the market and EIBOR’s range throughout the repayment period, which can last up to 25 years.	It is very difficult to foresee the market and EIBOR’s range throughout the repayment period, which can last up to 25 years.

Next steps - speak to an expert

When your fixed rate is coming to an end, there is no one size fits all solution. Focus on what is important to you and make the most adequate decision. Kredium is here to help you along the way and can find you a personalized loan offer that works for you. You can start by contacting us today.

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