Fixed vs Variable Rate Mortgage

Fixed rates stay the same for a set period (1-5 years), while variable rates change with EIBOR market movements.

What is Fixed vs Variable Rate Mortgage?

Fixed rate mortgages keep your interest rate and monthly payment constant for a set period (typically 1, 2, 3, or 5 years in the UAE). After the fixed period ends, the rate usually converts to a variable rate linked to EIBOR. Variable rate mortgages are quoted as EIBOR plus a margin and change when EIBOR is reset (typically quarterly). Variable rates are usually lower initially but carry the risk of increasing if EIBOR rises.

Fixed vs Variable Rate Mortgage in the UAE

Most UAE mortgages start with a fixed rate for 1-5 years, then convert to variable (EIBOR + margin). True lifetime fixed rates are rare in the UAE. The choice between fixed and variable depends on EIBOR trends and your risk appetite. When EIBOR is high and expected to fall (as in late 2024/2025), variable rates may be more attractive. When rates are low and expected to rise, locking in a fixed rate provides certainty.

Worked Example

AED 2M mortgage, 25-year tenure. Option A: Fixed 4.49% for 3 years, then EIBOR + 1.99%. Monthly EMI (fixed period): AED 11,120. Option B: Variable EIBOR + 1.75% from day one. If current EIBOR is 4.0%, initial rate is 5.75%, EMI: AED 12,550. If EIBOR drops to 3.0%, rate becomes 4.75%, EMI: AED 11,375.