With fewer interest rate cuts in 2025, is now the right time to take a home loan?
Should you delay any big borrowing plans to 2026, lock in a mortgage now or wait a bit?
Dubai: If you're planning to take on a mortgage, you may be wondering whether a fixed or variable interest rate is better given the current economic climate. Interest rates have remained high in recent years, making borrowing expensive, but with rate cuts expected later in 2025 and beyond, is it worth delaying your decision? Let’s break it down.
Over the past couple of years, rising interest rates have made borrowing more expensive globally. The US Federal Reserve and central banks like the UAE’s have implemented multiple rate hikes to curb inflation. While some relief was expected in 2024, policymakers have scaled back their projections for rate cuts next year. Instead of the previously anticipated four rate cuts, only two are now expected in 2025.
For borrowers, this means that interest rates will remain relatively high for longer, delaying the significant cost reductions that many were hoping for. As a result, financing a home today may still be costly, but relief could be on the horizon towards 2026 if more rate cuts follow.
Which mortgage type makes sense right now?
Each mortgage type has its pros and cons, but the current rate environment plays a key role in the decision:
Fixed rate: If you prefer stability and want to lock in your mortgage payments, a fixed rate is a safer choice. This is especially beneficial if rates remain high or increase further before significant cuts occur.
Variable rate: If you can handle some uncertainty and believe rates will decrease more than currently forecasted, a variable rate might be advantageous. Once rates decline, your payments could drop without needing to refinance.
Should you delay your mortgage decision?
With interest rates expected to decline only slightly in 2025, financial experts suggest that postponing major borrowing decisions until early 2026 may lead to more favorable terms. However, waiting isn’t always practical. If you need to buy a home now, here’s what to consider:
If affordability is a concern, a variable rate could offer lower initial payments, but you should be prepared for potential increases before substantial rate cuts materialize.
If long-term predictability is important, a fixed rate ensures stable payments, protecting you from any unexpected rate hikes.
If you already have a mortgage, it may be worth refinancing when rates drop further in 2026.
Other factors to consider
Beyond interest rates, consider additional costs associated with mortgages. Refinancing fees, prepayment penalties, and loan origination costs can affect the overall savings from switching mortgage types. Consulting a mortgage advisor can help determine if refinancing or waiting is the best move.
Another key factor is inflation. While inflation has been cooling, unexpected economic events could still influence central bank decisions. If inflation picks up again, interest rates may not drop as quickly as expected, which would impact variable-rate mortgages.
Additionally, real estate market trends in the UAE can influence mortgage choices. If property prices continue rising, waiting too long to purchase could mean paying more for the same property later, even if interest rates are lower.
Verdict
If you're borrowing now or in early 2025, weigh your priorities. If you value stability, a fixed rate is the safer bet. If you're comfortable with some risk and expect rate reductions beyond current forecasts, a variable rate could save you money in the long run. However, if you have flexibility, waiting until 2026 may offer the best mortgage terms as rates are expected to decline further.
Ultimately, the decision should be based on your financial situation, risk tolerance, and long-term plans. Keeping a close eye on interest rate movements and market conditions will help you make an informed choice.
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