Sample article: written to demonstrate the ASK blog. It will be reviewed or replaced by the ASK team.
One of the main choices when you take a mortgage is how the interest rate is set. Neither option is right for everyone: the better choice depends on your budget, your plans and how comfortable you are with your repayments changing.
Fixed rates
With a fixed rate, the interest rate stays the same for an agreed initial period. Your monthly repayment is predictable during that time, which makes budgeting easier. The trade-off is that you do not benefit if market rates fall, and leaving or changing the mortgage during the fixed period may involve fees.
Variable rates
A variable rate can move up or down during the term. In the UAE, variable rates are commonly linked to a benchmark such as EIBOR (the Emirates Interbank Offered Rate) plus a margin set by the lender. When the benchmark changes, your rate and monthly repayment change with it. You may pay less when rates fall, but you need room in your budget for increases.
What happens when a fixed period ends?
Most fixed-rate mortgages move to a variable rate when the fixed period ends. It is important to read how that rate will be calculated, and whether there is a minimum rate that applies even if the benchmark falls. Some borrowers review their options at this point; any change of lender or product has its own costs and conditions.
Questions to ask before you choose
- How long is the fixed period, and what rate applies afterwards?
- Which benchmark is a variable rate linked to, and what margin is added?
- Is there a minimum rate?
- What fees apply for early settlement or partial repayments?
- Could your budget cope if your repayment rose?
Compare the total cost
Look beyond the headline rate. Arrangement fees, insurance requirements, early settlement terms and the rate after any fixed period all affect what the mortgage costs you over time. Our mortgage calculator can help you see how different rates and terms change a monthly repayment; the figures are estimates, not lender quotations.
How ASK can help
We explain the rate structures available for your situation in plain language and help you compare them on total cost. Rates and terms are set by each bank or finance provider and can change.
