Should UAE property owners with mortgages choose refinancing in 2025?
Sure, interest rates have been cut, but mortgage refinancing needs careful handling
Dubai: UAE property investors with mortgages to pay off are back to asking that one question – will they be better off refinancing their home loan now that there have been 3 interest rate cuts in the last 4 months?
This is most vital for those property owners who are currently under variable interest rate EMI obligations. Because after the series of US – and UAE - interest rate hikes since March 2022, they have been paying a whole lot more on a monthly basis during this period. Since September, the base interest rate in the US has been cut by 1%, and which was mirrored by the UAE Central Bank.)
Now, if they do refinance, they can lock in a lower rate for a fresh 2- or 3-year term, and ensuring their monthly instalments will be lower than what they are paying now. (Mortgage loans typically have two components, the fixed rate period at the start of the payment term and which could be for 2- to 3 years. Then kicks in the variable rate part, where the EMIs go up or down depending on interest rate movements.)
“We are seeing fixed rates starting from 3.79%, which is significantly lower than what we had seen this time last year,” said Michael Hunter, founder of Holo, the Dubai-based online mortgage consultancy. “Fixed rates provide stability - however you may find that a variable rate will be a more suitable option in an environment where rates are likely to continue being cut.
“We need to look at the cost vs. reward when changing lender to obtain a better mortgage product. On occasions the cost to switch is more than the savings.”
We need to look at the cost vs. reward when changing lender to obtain a better mortgage product. On occasions the cost to switch is more than the savings
So, those property owners paying mortgages but still on fixed rate payments should not be thinking too much about a refinance now.
Those who should do so are those on variable payments. They now have a chance to bring their EMI payments lower – but don’t just rush in.
Banks will soon push the refinancing message
Starting 2025, banks in the UAE will start aggressively pursuing mortgage refinance options to property owners, a sizeable number of whim tend to be end-user buyers. Their messaging will be quite straight forward – ‘Bring down your EMIs by seeking a refinance at a lower mortgage rate…’
But is it that simple? US long bonds (the 10-year ones) are still persistently high, and that has a telling effect on variable mortgage pricing.
“Last Wednesday’s (December 18) comments by US Fed Chair Jerome Powell have led to the 10 year bond rate moving sharply higher (on concerns of sticky inflation),” said Sameer Lakhani, Managing Director of Global Capital Partners. “This means US mortgage rates have moved higher despite the cut to base interest rates.
“We have seen a similar phenomenon playing out in the UAE on variable mortgage loans. Property buyers on variable mortgages need to keep this in mind. Unless long-term rates too start moving lower, mortgages will remain relatively higher.”
Unless long-term rates too start moving lower, mortgage rates will remain relatively higher
These property owners, on the face of it, should ideally be looking at a refinancing, preferably early next year.
The UAE mortgage rates are typically linked to EIBOR (Emirates Interbank Offered Rate).
Takes time for rate cuts to filter through
Bal Krishen is Chairman of Dubai-based Century Financial, who says that it could be a further 6-12 months ‘to see meaningful effects of lower rates in the economy. “Nonetheless, mortgage holders, especially those with a variable rate, should start seeing some benefits in the year ahead,” said Krishen. “Besides, with interest rates decreasing, more people will likely be eligible for mortgages. Someone not eligible for a mortgage today may qualify for a home loan in six months.
Given the current global market dynamics, the benefits of central bank rate cuts may not translate into lower monthly mortgage payments immediately for borrowers if the yields remain elevated
Check the finer details
If the difference in rates is marginal between what they pay now and on refinancing, UAE mortgage holders should ‘avoid refinancing due to the associated costs’.
“If the difference is more than 75 basis points, it is worth considering a switch,” said Yash Trivedi of YOUAE Mortgages, an advisory firm. “Those who fixed their mortgage rates between 4.75% and 5.49% for three years sometime in the last two years should definitely explore current offerings.
“On the other hand, those with rates between 4.24% and 4.75% may want to wait a bit longer.”
UAE mortgage holders can consider refinance depending on their current lock-in rate and loan amount (to be paid off). If the difference in rates is marginal, clients should avoid refinancing due to the associated costs