Dubai: UAE property investors who are still repaying mortgages are once again asking themselves one key question – will they really benefit from refinancing their home loan now that there have been three interest rate reductions in the last four months?
This is especially significant for those property owners who currently have variable interest rate EMI (equated monthly installment) obligations. After the round of US – and UAE – interest rate hikes that began in March 2022, they have been paying significantly higher monthly amounts during this period. Since September, the US base interest rate has been reduced by 1%, and that move was mirrored by the UAE Central Bank.
Now, if these borrowers do refinance, they can secure a lower interest rate for a fresh 2- or 3-year term, ensuring monthly installments are lower than what they are currently paying. (Mortgage loans typically have two components: the fixed rate period at the start of the term—often 2 to 3 years—followed by the variable rate portion, where EMIs fluctuate based on interest rate movements.)
“We are seeing fixed rates starting from 3.79%, which is significantly lower than what we had seen at this time last year,” said Michael Hunter, founder of Holo, the Dubai-based online mortgage consultancy. “Fixed rates provide stability – however you may find that a variable rate will be a more suitable option in an environment where rates are likely to continue being cut.
“We need to look at the cost vs. reward when changing lenders to obtain a better mortgage product. On occasions, the cost to switch is more than the savings.”
We need to look at the cost vs. reward when changing lenders to obtain a better mortgage product. On occasions, the cost to switch is more than the savings
Michael Hunter of Holo
As a result, property owners with mortgages who remain under fixed-rate payment terms shouldn’t be in a rush to refinance right now. Those who should consider it, however, are those on variable rate payments. They now have an opportunity to reduce their monthly outgoings—but it’s important not to jump in without due diligence.
Banks Will Soon Push The Refinancing Message:
Starting 2025, banks in the UAE are expected to step up their efforts to market mortgage refinancing options to property owners, many of whom are end-user buyers. Their message will be simple: ‘Reduce your EMIs by refinancing at a lower mortgage rate…’
But is it really that straightforward? Long-term US bonds (the 10-year Treasury notes) remain stubbornly high, and that exerts upward pressure on variable mortgage pricing.
“Last Wednesday’s (December 18) comments by US Fed Chair Jerome Powell caused the 10-year bond rate to move sharply higher (on concerns over persistent inflation),” said Sameer Lakhani, Managing Director of Global Capital Partners. “This means US mortgage rates have risen, despite the cut to base interest rates.
“We have seen a similar phenomenon playing out in the UAE on variable mortgage loans. Property buyers on variable mortgages need to keep this in mind. Unless long-term rates too start moving lower, mortgages will remain relatively higher.”
Unless long-term rates too start moving lower, mortgage rates will remain relatively higher
Sameer Lakhani of Global Capital Partners
Given this backdrop, homeowners on the surface may want to consider refinancing, ideally in early 2025. UAE mortgage rates are typically tied to the Emirates Interbank Offered Rate (EIBOR).
Takes Time For Rate Cuts To Filter Through:
Bal Krishen, Chairman of Dubai-based Century Financial, notes it could take up to 6-12 months to see tangible effects of lower rates filter through into the wider economy. “Nonetheless, mortgage holders, especially those with a variable rate, should start seeing some benefits in the year ahead,” said Krishen. “Besides, with interest rates decreasing, more people will likely be eligible for mortgages. Someone who isn’t eligible for a mortgage today may qualify for a home loan in six months.”
“Given the current global market dynamics, the benefits of central bank rate cuts may not translate into lower monthly mortgage payments immediately for borrowers if the yields remain elevated.”
Bal Krishen of Century Financial
Check The Finer Details:
If the difference in rates between what they pay now and what they can get through refinancing is minimal, UAE mortgage holders should “avoid refinancing due to the associated costs”.
“If the difference is more than 75 basis points, it is worth considering a switch,” said Yash Trivedi of YOUAE Mortgages, an advisory firm. “Those who fixed their mortgage rates between 4.75% and 5.49% for three years at any point in the last two years should definitely explore current offerings.
“On the other hand, those with rates between 4.24% and 4.75% may want to wait a bit longer.”
UAE mortgage holders can consider refinance depending on their current lock-in rate and loan amount (to be paid off). If the difference in rates is marginal, clients should avoid refinancing due to the associated costs
Yash Trivedi of YOUAE Mortgages
