K|Wise · Glossary
Variable Rate
A mortgage rate that moves in line with the EIBOR benchmark plus a fixed lender margin. The rate resets at agreed intervals — typically every 3 or 6 months.
In plain English
A mortgage rate that moves in line with the EIBOR benchmark plus a fixed lender margin. The rate resets at agreed intervals — typically every 3 or 6 months.
What Variable Rate means in practice
A variable rate is built from two parts: a benchmark that moves, and a margin the lender fixes for the life of the loan. When the benchmark resets, your rate and instalment are recalculated.
You carry the interest rate risk in exchange for the benefit of any falls. Over a 25-year term that exposure is substantial, which is why the margin — the part that never changes — deserves as much scrutiny as today's rate.
How it works in the UAE
Most UAE variable mortgages track 3-month EIBOR and reset quarterly, so benchmark moves reach your instalment within a quarter. Some products attach a cap for the opening years, and because the dirham is pegged to the dollar, the direction of travel is set largely by US rate policy rather than local conditions.
A worked example
At 3-month EIBOR of 4.25% plus a 1.50% margin you pay 5.75%. Should EIBOR reach 5.00% at a later reset, the rate becomes 6.50% and the instalment on AED 1,500,000 rises by roughly AED 700 a month.
Terms that come up alongside Variable Rate
Cap
A contractual maximum on how much your variable mortgage rate can rise over a defined period. A common UAE structure caps the rate at 5.99% for the first 3 years.
Read the definitionEIBOR
The Emirates Interbank Offered Rate — the benchmark interest rate at which UAE banks lend to each other. Variable mortgage rates are quoted as EIBOR plus a lender margin (e.g. 3M EIBOR + 1.50%).
Read the definitionEMI (Equated Monthly Instalment)
The fixed monthly payment a borrower makes to the lender, covering both principal and interest. The EMI remains constant on fixed-rate periods but resets on variable rates each EIBOR reset date.
Read the definitionFixed Rate
A mortgage rate that is locked in place for a set period — typically 1, 3, or 5 years in the UAE. After the fixed period the loan reverts to the lender's variable rate unless refinanced.
Read the definitionRefinancing
Replacing an existing mortgage with a new one — usually with a different lender — to achieve a lower rate, release equity, or improve terms.
Read the definitionStress Test
A lender's affordability check that simulates a higher interest rate to ensure the borrower can sustain repayments if rates rise. UAE banks typically stress-test 2% above the contractual rate.
Read the definition