What is the difference between a variable and fixed rate?

Variable Rates

A variable interest rate is made up of two components, a bank ‘margin’ which remains fixed for the entire loan term, and the central bank’s issued lending rate know in the UAE as the ‘EIBOR’, the Emirates Inter Bank offered Rate.

Variable interest rates fluctuate based on the EIBOR rate being applied against the bank margin rate. EIBOR rates in the UAE are applied to mortgages and home finance in monthly, quarterly, half yearly and annual versions. to put this into perspective the 1 month EIBOR will see your installment and rate change on a monthly basis and a 12 Month EIBOR product will see your installment and rate change only once every 12 months.

Fixed Rates

Fixed rates are offered by all of the banks currently in the UAE mortgage market. Fixed rate mortgages are useful products for locking in the rate and installment payable for longer periods of time, with fixed periods in the UAE ranging from 1 year right the way up to 15 years, following the maturing of the fixed rate products your bank will then apply a pre agreed variable rate (bank margin + EIBOR) to the home loan to take over once the fixed rate period has expired.

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