What is the difference between a flat rate and a reducing rate of interest for a mortgage?

Flat rate and reducing rate of interest are two methods used to calculate the interest on a mortgage. A flat rate of interest remains the same throughout the loan term and is calculated based on the original amount borrowed or principal, while a reducing rate of interest takes into account the repayments made by the borrower and is calculated based on the outstanding balance. In some cases, a flat rate may be advertised at a lower rate than a reducing rate. It is crucial to confirm with the bank or mortgage broker which rate has been applied when obtaining a mortgage. In the UAE, all the banks use a reducing rate of interest for mortgages, however for other loans, like car loans, some banks might be using flat rates. To speak to an advisor and fully understand the difference, click here.