UAE homeowners with mortgages are once again facing a big decision: should they refinance now that interest rates have been cut three times in the past four months?
This question is particularly urgent for those on variable-rate mortgage plans, as they’ve been paying significantly higher monthly installments since interest rates began rising in March 2022. However, with the latest 1% cut to the base rate in both the US and UAE since September, homeowners now have an opportunity to lock in lower rates for the next two to three years.
Mortgage loans generally start with a fixed-rate period—typically two to three years—before transitioning to a variable rate that fluctuates based on market conditions. Right now, fixed rates have dropped to around 3.79%, a significant improvement from last year’s highs. While fixed rates offer stability, those expecting further rate cuts may still prefer a variable rate to take advantage of potential savings in the future.
Refinancing isn’t always a straightforward win, though. The cost of switching lenders or securing a new mortgage deal can sometimes outweigh the benefits of lower rates. If the difference between your current rate and the new offer is marginal, refinancing may not be worth the expense. However, if the gap is at least 75 basis points (0.75%), it could make financial sense to switch.
For those currently on fixed-rate mortgages, refinancing now may not be necessary, especially if their locked-in rates are competitive. However, homeowners on variable-rate mortgages should start reviewing their options to potentially reduce their EMIs. That said, it’s important to proceed with caution and not rush into a decision solely based on recent rate cuts.
