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Variable-rate mortgages explained

A variable-rate mortgage does what it says on the tin: it varies! That’s because the interest rate is not fixed for any set period of time, like a fixed-rate mortgage.

A person signing for a mortgage for which they chose a fixed rate

Buying a property is an exciting, but daunting process. One of the key factors to consider as part of that process is what type of mortgage rate to get: a fixed-rate mortgage or a variable-rate mortgage. You can find out everything you need to know about fixed-rate mortgages here in an article we published recently. But today, we’re going to look at the advantages and disadvantages of a variable-rate mortgage so you can decide if it’s the right one for you.

What is a variable-rate mortgage?

A variable-rate mortgage does what it says on the tin: it varies! That’s because the interest rate is not fixed for any set period of time, like a fixed-rate mortgage. Most variable mortgages have their interest rates linked to the Emirates Interbank Offered Rate (EIBOR), which is published by the UAE Central Bank and is based on the average interest rates UAE banks offer. These rates are linked to 1, 3, 6, or 12-month EIBOR.

With a variable-rate mortgage, your interest rates can go up or down over time, meaning your monthly payments can vary.

What is an offset mortgage?

Offset mortgages are a bit different. It’s where instead of keeping your mortgage completely separate from your day-to-day finances, you combine your mortgage with your regular income and outgoings into a single account. The main benefit of this type of mortgage is to pay less interest and reduce the length of the mortgage term.

Advantages of variable-rate mortgages:

You’ll benefit from any drop in the EIBOR rate, and with that, your monthly payments will decrease. If EIBOR rates remain low, you may end up paying less interest over a significant period of your mortgage term.

Variable-rate mortgages tend to be better for medium- and long-term mortgages where you will avoid paying the higher reversion rate once the fixed-term period comes to an end. Payments may only rise or decrease slightly, instead of sharply.

Disadvantages of variable-rate mortgages:

Your payments can fluctuate from month to month, making it difficult to budget and plan your finances. If you want peace of mind, a fixed-rate mortgage may be a better option.

Your payments may increase if the EIBOR rate rises.

Watch out for banks that charge a ‘minimum floor rate’. This is where they charge the EIBOR rate plus an additional margin so when EIBOR is low, the banks will be able to make extra profits.

Looking for a mortgage? We can help

If you need help finding the best mortgage offers tailored to your needs, then we can help. We’re the first entirely online mortgage broker in the UAE that offers a faster and easier mortgage experience.


Written by Huspy Team

Published on 21 July 2021

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