Fixed or variable mortgage rate in the UAE: how to choose

Every UAE mortgage offer comes with a rate structure, and the choice between fixed and variable decides how far your payment can move.

The movement is real money. If the rate goes up by one percentage point, the payment on a AED 1,000,000 loan over 25 years rises by roughly AED 530 to 600 a month, depending on where the rate started.

We do not publish rates on this page because they move with EIBOR and with each bank's pricing. When we run your case, we quote the live offers.

How a fixed rate works

With a fixed rate, the bank sets your rate for an initial period, usually 1 to 5 years. Your payment stays the same every month for that time, whatever happens to EIBOR.

When the fixed period ends, the loan moves to a variable rate. That is normally EIBOR, often 3-month EIBOR, plus a margin set by the bank. The margin is written in your offer letter on day one.

Read it. Two offers with the same fixed rate can have very different follow-on margins, and the follow-on rate is what you pay for the rest of the loan unless you switch. As a rough guide, every 0.5 percentage points of margin costs about AED 260 to 300 a month for each AED 1,000,000 you owe. Over the twenty or so years left after a short fix, that adds up.

How a variable rate works

A variable rate is EIBOR plus the bank's margin from the first payment. Many variable home loans track 3-month EIBOR and reset every three months, so your payment can change four times a year. Some banks use 1-month or 6-month EIBOR instead.

Many variable loans also carry a floor rate. This is the minimum rate the bank will charge, however low EIBOR goes. If EIBOR plus the margin works out below the floor, you pay the floor. In practice, a floor limits how much you gain when rates fall and does nothing to limit rises.

What moves EIBOR

EIBOR is the Emirates Interbank Offered Rate, the benchmark UAE banks use to price variable loans. The dirham is pegged to the US dollar, so the Central Bank of the UAE generally follows US Federal Reserve rate decisions, and EIBOR moves with them.

When you choose between fixed and variable, you are partly taking a view on US interest rates. We do not forecast them, and you should be wary of anyone who says they can.

Fixed and variable side by side

	Fixed rate	Variable rate
Monthly payment in the early years	Stays the same during the fixed period	Changes when EIBOR resets
If EIBOR rises	Protected until the fix ends	Payment goes up
If EIBOR falls	No change until the fix ends	Payment goes down, but not below the floor
After the initial period	Moves to EIBOR plus margin	Stays at EIBOR plus margin
Early settlement fee	Capped at 1% of the balance or AED 10,000	Same cap

Which one suits you

A fixed rate tends to suit you if:

• your mortgage payment already uses most of your 50% debt burden allowance, so a rise would squeeze you
• you have just spent most of your savings on the deposit and fees, and want a few years of predictable payments while you rebuild them
• your income is uneven, for example from a business, and one fixed number is easier to plan around
• you expect to keep the property at least as long as the fixed period

A variable rate tends to suit you if:

• you expect to sell, or pay off a large part of the loan, within a year or two
• your income has enough room that a one point rise, worth AED 530 to 600 a month on each AED 1,000,000 borrowed, would not cause problems

On borrowing power, the structure makes less difference than people expect. Most banks test affordability at a stressed rate, higher than the starting rate, whichever option you pick. A lower starting variable rate does not usually let you borrow more.

Leaving a fixed rate early also costs less than many buyers assume, because of the Central Bank cap. If you sell after 2 years with AED 1,150,000 outstanding, 1% would be AED 11,500, so the fee is capped at AED 10,000. Some banks also reclaim fees they waived at the start, such as the arrangement fee, if you leave within an agreed period. Check that clause before you sign.

When your fixed period ends

Start looking about three months before the fix runs out. That gives time for a new valuation and approval if you decide to move.

The simplest option is to stay on the follow-on rate. There is nothing to do, but it is often not the best rate available to you.

You can ask your current bank for a new fixed period. Many banks will re-fix for existing borrowers, sometimes for a fee, and it avoids the cost of moving.

Or you can move the loan to another bank, often called a buyout or balance transfer. The new bank pays off the old one and registers a new mortgage. That has costs. The new mortgage registration fee is 0.25% of the loan plus about AED 290, so AED 2,540 on a AED 900,000 balance. Add a valuation at AED 2,500 to 3,500 plus VAT, any arrangement fee at the new bank, and the early settlement fee at the old one if it still applies after the fix. We set those costs against the monthly saving before recommending a switch.

Our refinance page and refinance calculator go into this in more detail.

Islamic home finance

Islamic home finance uses a profit rate instead of interest, but the choice looks the same: a fixed profit rate for an initial period, or a variable one linked to EIBOR. The comparison above applies. See our page on Islamic mortgages for how the structures work.

Try two rate scenarios in the mortgage payment calculator to see what a one point rise does to your own payment, then message us on WhatsApp at +971 52 871 6915 for the fixed and variable offers the banks are quoting now.