When you finance a property in Dubai by choosing a variable-rate Mortgage option, or planning to take one, you have probably heard the term EIBOR. Well in this scenario it becomes crucial to understand it because it directly impacts how much you pay every month on your loan.

Let's understand it in simple terms.

What is EIBOR? and EIBOR full form

EIBOR stands for Emirates Interbank Offered Rate. It is a benchmark interest rate that banks in UAE charge each other while lending loans for short-term periods.

EIBOR rates are updated daily and published under the supervision of the UAE Central Bank. There are different tenures of EIBOR.

Most of the mortgages in UAE are linked to 3-month EIBOR, although there are other options like 1-monthEIBOR, 6-month EIBOR. in the UAE are linked to 3-month EIBOR.

How Does it Affect Your Mortgage?

When you take a loan with a variable-rate mortgage in Dubai, the interest rate is usually linked to EIBOR. The structure of your interest rate is typically defined as follows:

EIBOR + bank margin

For example;

You choose the 3-month EIBOR and it is 3.50%, and your bank margin is 1.50%. with the increase in EIBOR, your total interest rate increases, and with the decrease in EIBOR your rate decreases.

Why does EIBOR change?

There are various reasons behind the change in EIBOR. It fluctuates due to:

  • Monetary policy in the UAE
  • Decisions made about US Federal Reserve Interest rate
  • Inflation levels
  • Change in global economic conditions
  • Liquidity in the banking system.

UAE dirham is pegged to the US dollar. Any change in the US interest rate often influences the EIBOR in the UAE.

Effects on Fixed and Variable rates.

If you have chosen the fixed-rate mortgage, it will not be affected by the EIBOR, as your monthly interest rates are fixed for a certain period of time. When that period ends, your loan will switch to variable-rate Mortgage.

Variable-rate Mortgages are mostly linked with EIBOR, and are directly affected by EIBOR movements.

What to do?

You need not to worry about the EIBOR, but you should be prepared. If you choose a variable-rate Mortgage you need to:

Ensure that your income can handle a significant increase in rates

Keep emergency savings with you

Stay updated about the EIBOR trends

Consider refinancing if rates are rising significantly for a longer period.

How to Stay Updated?

You should monitor EIBOR rates regularly, published on the official website of the UAE Central Bank and are also available on other financial websites.

Conclusion

If your loan is variable then EIBOR becomes one of the most important factors of influencing Mortgage costs in the UAE. Your monthly repayment amount depends upon the EIBOR. Before applying for the loan on a variable-rate Mortgage you must study the past few years trends related to EIBOR. Your clear understanding of the EIBOR can help you make the smart financial move when buying property in Dubai.