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You should refinance if you have a variable rate, or if your fixed rate becomes variable in the next 3-6 months. Here is why.

Starting point: understand your mortgage structure

In the UAE, the norm is that Banks offer mortgages that are fixed for 1 year, 2 years, 3 years or 5 years. Post the fixed period, all these mortgages become variable and follow a variable structure of “Bank Margin” + “1 or 3M EIBOR”. The Bank margin usually goes from 0.5% to 3%, depending on the client profile e.g. resident, non-resident, salaried, self-employed etc. The EIBOR part follows the EIBOR index, which is either 1M EIBOR or 3M EIBOR depending on the bank and the offer taken. Both 1M and 3M EIBOR are indices set and tracked by the UAE Central Bank.

You become exposed with a variable rate

Post the fixed period, all mortgages become variable and change on a monthly or quarterly basis based on the new value of the 1M or 3M EIBOR. In an environment where rates are increasing, it is highly likely that mortgage holders end up paying more than their initial fixed monthly payments. In the finance jargon, we say that holders become “exposed” to variations in the mortgage rates, which are usually set by the banks. This implies that in case of high swings, or increasing rates environment, it is highly likely that your mortgage payments will increase drastically over the next few months or years.

Rates are expected to keep increasing.

In the case of the UAE, 3M EIBOR increased from 0.2% in November 2021, to more than 4.2% in October 2022, which is a 4% increase in a single year! In the case of a 1M AED mortgage, that means paying 40,000 AED more on a yearly basis, than the initial fixed payout. In the current environment where we operate (2022-23), it is assumed that rates will continue increasing, driven by inflation, which implies that your monthly payouts are also expected to continue increasing, if not refinanced with a fixed mortgage.

There are 3 fees to consider.

• Existing bank settlement fee: Min (10,000 AED, or 1% of the mortgage value), capped at 10,000 AED
• Property valuation fee: which can be anywhere between 2,650 and 3,150 AED, depending on the bank
• Mortgage registration fee: 0.25% of the mortgage value

Mortgage broker fee: 0 — we are free to you, as we get remunerated by our banking partners.

It makes perfect sense to refinance when your gross savings are expected to be higher than your refinancing fees.

For mortgages in the UAE above 1M AED: your refinancing fees can be considered to be 10,000 AED (settlement) + ~3,000 AED (valuation) + 0.25% mortgage value (registration).

If your existing rate is ~1-1.5% higher than the market's fixed rates, then it probably makes perfect sense to do it. Your advisor can help you simulate and help you make a decision about your mortgage refinance.