Fixed vs variable rate mortgages in the UAE

A fixed-rate mortgage keeps the same rate for an agreed period, so your instalment does not change with the market. A variable-rate mortgage follows a reference rate such as EIBOR plus the lender’s margin, so your instalment can rise or fall at each reset. Some loans fix first, then turn variable.

Key takeaways

• A fixed rate protects your instalment from rises for the fixed period, and also stops it falling if market rates fall.
• A variable rate is a reference rate plus a margin, so it moves on the reset dates in your contract.
• Many home loans mix the two, so the rate the loan reverts to matters as much as the headline rate.
• Lenders must state whether a rate is fixed or variable, and for a fixed rate how long it is fixed.
• We do not quote current rates or rank lenders; the figures below are illustrations only.

What fixed and variable mean

The difference is whether the rate on your loan can change while you are repaying it, and what moves it. Your mortgage contract and its Key Facts Statement say which type you have.

Fixed rate

A fixed rate is set in the contract and stays the same for the fixed period. During that time the instalment on a standard repayment loan does not change, whatever happens to EIBOR. The protection runs both ways: if market rates fall, a fixed rate does not follow them down.

Variable rate

A variable rate is built from two parts: a reference rate and the lender’s margin. In a UAE home loan the reference rate is usually an EIBOR term, such as 3-month EIBOR. The margin is the lender’s own part of the rate. Between resets, the reference part stays as it was fixed at the last reset, so a change in the market reaches your instalment only on the next reset date set in your contract.

Fixed, then variable

Many home loans combine the two: a fixed rate for an initial period, after which the loan reverts to a variable rate. Mashreq’s Key Facts Statement for its home loans, last revised on 19 June 2026, offers a combination of fixed and variable rates. The rule below governs how such a rate may be advertised.

Fixed periods in adverts

Fixed period and revert rate shown

Where a lender's advertisement shows an Annual Percentage Rate, it must say whether the rate is fixed or variable and, for a fixed rate, display how long it is fixed; an advertised introductory rate must state when the offer ends and what the rate will revert to.

Fixed vs variable at a glance

Worked example: same start, different path

Worked example

AED 1,000,000 over 25 years, fixed against variable after 12 months

The rates are illustrations, not current offers. Both loans start at 5.0% a year on a reducing balance, repaid in equal monthly instalments over 300 months. The fixed loan stays at 5.0%. The variable loan is 3.5% EIBOR plus a 1.5% margin and resets after 12 payments.

1. Both loans: instalment of about AED 5,845.90 for the first 12 months.
2. After 12 payments, the balance on both is about AED 979,380.93.
3. If EIBOR rises 1 point at the reset, the variable rate becomes 6.0% for the remaining 288 months and the instalment about AED 6,424.52, which is AED 578.62 a month more, or AED 6,943.44 a year.
4. If EIBOR falls 1 point, the variable rate becomes 4.0% and the instalment about AED 5,295.42, which is AED 550.48 a month less, or AED 6,605.76 a year, unless the contract sets a minimum rate above 4.0%.
5. The fixed loan keeps its instalment of AED 5,845.90 throughout the fixed period in both cases.

From month 13	Rate	Instalment	Against the fixed loan
Fixed	5.0%	AED 5,845.90	No change
Variable, EIBOR up 1 point	6.0%	AED 6,424.52	AED 578.62 a month more
Variable, EIBOR down 1 point	4.0%	AED 5,295.42	AED 550.48 a month less

Over one year, a 1-point move either way changes the cost by about AED 6,600 to AED 6,900.

In practice, a lender may price the two types at different starting rates, so the real comparison is the starting gap against how far the reference rate could move. Our loan payment calculator lets you rerun the example with the rates in your own offer.

What a fixed period does not cover

A fixed rate is a promise about the rate for a set time, not about the whole loan. Three points are easy to miss.

• The end date. When the fixed period ends, the loan moves to the rate stated in the contract. If that is EIBOR plus a margin, the instalment can jump at the first reset after the fixed period, because the reference rate is whatever it is then.
• A minimum rate. Some variable rates have a floor. Mashreq’s statement sets a minimum rate, subject to final approval, so a fall in EIBOR lowers the rate only down to that minimum. A variable rate with a floor does not give the full benefit of a falling market.
• Leaving early. If you might sell or refinance during the fixed period, ask the lender in writing what settling early would cost. The early settlement calculator shows the Central Bank’s cap on the fee.

The margin is a separate matter from the reference rate. Where a loan’s rate can change, a lender may not raise the margin it adds to the variable base rate until 30 calendar days after notifying you. A change in EIBOR itself follows the reset dates in your contract, although the lender must still tell you about the new rate.

How lenders test the rate

Before approving a mortgage, lenders check that you could still repay if the rate rose. The test applies to every mortgage lender, whichever rate type you choose.

Mortgage stress test

+2 to 4 points

When working out the debt burden ratio, mortgage lenders must stress-test the loan at 2 to 4 percentage points above its current interest rate; with an introductory rate, the test uses the rate that applies after it ends.

In the example above, a test at 2 points above 5.0% uses 7.0%: on the full AED 1,000,000 over 25 years, an instalment of about AED 7,067.79, which is AED 1,221.89 a month more than the AED 5,845.90 you would actually pay at 5.0%. The test checks your affordability; it does not cap how far a variable rate can move during the loan. For a loan with an introductory fixed rate, the test uses the rate that applies after it ends, so a low fixed rate does not make the approval easier. The mortgage pre-approval guide explains how banks size your loan, and the mortgage affordability calculator applies the stress test to your income and debts.

Questions to ask before you choose

Before you sign, the Key Facts Statement must say whether the rate is fixed, variable or a mix, and for a variable rate it must show with an example what a rise would do to your payments.

Rate-rise example before you sign

Rate-rise example required

For a variable-rate loan or financing, the lender must show the consumer, with an illustrative example, what a rise in the annual rate would do to the payments, to the split between interest or profit and principal, to the tenor, and to any deferred or balloon payment.

Use that statement to get clear answers to these questions:

1. Is the rate fixed, variable or a mix, and if it is fixed, for how long?
2. What does the rate revert to when the fixed period ends, and which EIBOR term does it follow?
3. How often does the rate reset, and on which dates?
4. Is there a minimum rate, and what is it?
5. What would settling or refinancing early cost during the fixed period?
6. Could you still meet the instalment if the rate rose by at least the 2 points that lenders use in their own test?

These questions apply whatever your status. The limits on how much you can borrow differ for residents and non-residents, so read mortgages for expats or mortgages for non-residents alongside this guide. If you are buying before completion, financing off-plan property explains when the bank’s money starts. The rate is only one part of the cost of buying: the Dubai Land Department and mortgage registration fees sit alongside it. We explain the rules rather than recommend a lender or product; our about page sets out how we work and why we carry no affiliate links or ads.

Fixed and variable in Islamic home finance

Islamic home finance charges rent or profit rather than interest, but the same fixed or variable question applies. On 13 October 2026, Dubai Islamic Bank’s home finance page gave the profit rate for first-time buyers and existing home owners as EIBOR for 3, 6 or 12 months plus a margin, which is a variable structure.

The Central Bank’s Regulation No. 1/2026 on the transactions of Islamic financial institutions sets rules for the structure used. These rules apply from 14 September 2027.

Variable rent in an ijarah

Variable rent with cap and floor

An ijarah may carry a fixed or a variable rent; a variable rent is allowed if the first rental period's rent is a set amount in the contract and each later period's rent is worked out before that period starts from an index or benchmark neither party controls, which must have a maximum and a minimum stated in the contract, and a period's rent cannot change once that period has begun.

A murabaha works differently under the same regulation: its price must be fixed when the contract is signed and may not vary or follow an index after that. Our guide to Islamic home finance explains the structures. We do not give religious rulings; ask the provider for its published Shariah certification.