Here at Holo, we are often asked which type of interest is best: a fixed rate or a variable rate. The answer to this question can be different based on your personal circumstances, so it's important to understand your preferences and the advantages and disadvantages of each rate type.

What is a fixed-rate mortgage?

A mortgage where the rate of interest you pay is unchanging for a predetermined period. In the UAE, fixed periods tend to be between 1 and 5 years but have been known to extend for as long as 10 years. At the end of the fixed rate period, your mortgage will revert to a variable rate, which will have been agreed upon at the beginning of the mortgage.

Advantages:

• The interest rate is unchanging, meaning your payments are "fixed." This will allow you to budget more accurately and give you peace of mind.
• Protects you from rate fluctuations.

Disadvantages:

• Fixed rates are normally higher than variable rates.
• Your rate is only fixed for a set period, meaning you will move onto a higher rate.

What is a variable-rate mortgage?

A mortgage in which the interest rate you pay is made up of a fixed element (bank margin) and EIBOR (explained below). Since EIBOR fluctuates, the rate you will pay will increase or decrease depending on which EIBOR your rate is linked to.

Advantages:

• A variable rate of interest will benefit from reductions in the EIBOR.
• It is frequently less expensive than fixed rates.

Disadvantages:

• If the EIBOR rate rises, your interest rate will rise too.
• Limits your long-term budgeting ability because rate fluctuations will increase or decrease your mortgage repayments.
• Banks will often impose a "floor" rate, which is the minimum rate of interest you will pay.

What is EIBOR?

The Emirates Inter-Bank Offered Rate (EIBOR) is the benchmark interest rate used for lending between banks within the United Arab Emirates. The EIBOR is also the reference rate used by borrowers and lenders to conduct financial transactions such as mortgages, personal loans, and car loans.

Which mortgage type is right for you?

The answer to this will depend on your circumstances, as both rate types have advantages and disadvantages. Here at Holo, one of our fully qualified mortgage consultants will be able to assess your needs and provide you with a recommendation based on your own unique circumstances.

Access our quick and easy-to-use mortgage calculator to start your journey to your personalized home loan quotation.

This blog is for educational purposes, but everyone's case is unique, and local guidelines and regulations may change. Our mortgage advisors can help you with any question you may have and have the latest advice. Get in touch.