Fixed and Variable Mortgage Rates Explained

Fixed and Variable Mortgage Rates Explained

We’re often asked which type of interest is best – fixed rate or variable. The answer to this question can vary based on your situation, so it’s important to understand the different types of interest and their advantages and disadvantages.

What are fixed rate mortgages?

Most banks offer fixed rate mortgages, where the rate of interest you pay on the amount you’ve borrowed is fixed for a set period of time. In the UAE, fixed periods tend to be between 1 and 5 years. After the fixed period ends, your interest rate will then ‘revert’ to a higher rate, which is often a fixed margin above the EiBOR rate or the bank’s own base rate.

EIBOR, or the Emirates Interbank Offered Rate, is a daily rate published by the UAE Central Bank. It is based on the average interest rates offered across all banks in the UAE within a particular period, excluding the two highest and two lowest rates. The EIBOR periods are: overnight, 1 week, 1 month, 3 months, 6 months, 12 months.

Advantages of fixed rate mortgages:

  • The interest rate is locked in, so you have security against rate increases.
  • As the interest rate doesn’t change, you’ll be able to accurately calculate your monthly mortgage payments and budget more effectively.
  • Fixed rate mortgages are a good option for those with shorter-term mortgages, who will not have to pay the higher reversion rate for too long once the fixed period ends.

Disadvantages of fixed rate mortgages:

  • If the bank’s base interest rate, or the EIBOR rate, fall, you won’t see any benefit during your fixed period.
  • The longer your fixed period, the less competitive your rate is likely to be.
  • The reversion rate after your fixed period ends is often high.
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What are variable rate mortgages?

Variable mortgages will have an interest rate usually linked to 1, 3 or 6 month EIBOR throughout their duration.

Advantages of variable rate mortgages:

  • They tend to be better for medium- and long-term mortgages, as you avoid the high reversion rate when your fixed period ends.
  • You’ll be able to take advantage of any decreases in the bank’s base rate, or the EIBOR rate.

Disadvantages of variable rate mortgage:

  • If the EIBOR rate rises, your interest rate will rise too.
  • Because your interest rate can change, your monthly repayment amounts can change too, making it more difficult to accurately budget each month.

Which mortgage type is right for you?

While there are advantages and disadvantages to both fixed and variable rates, ultimately the best rate type for you will depend on your circumstances and how important security against rate-rises is to you.

An independent mortgage broker like will be able to give you an unbiased recommendation based on an in-depth assessment of your current and future situation. We work for you, not the banks, so our priority will be getting you the best mortgage.

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