Pegging the debt to the currency

To the UAE's homeowners there will be no immediate benefit on their dirham mortgage rates from the recent cut in the US interest rate, an action which was repeated by the UAE Central Bank. It could be months before local mortgage takers can get to see any lowering in their interest payouts.

The general view of the lenders is is that there will be a little if any immediate reduction in rates for local mortgages. The banks will take advantage on the rate cut to increase their margins even temporarily. The rates will eventually easy over the next three to six months as most of the local lenders meet at six-monthly intervals to review rates.

But for the homeowners who have taken mortgages in dollars the story is different as some international lenders have reduced their dollar rate mortgage from 6.62 to 5.78 per cent.

Two currencies have lower rate than the market average - the dollar at 5.78 per cent and the Swiss franc at 5.29 per cent. But customers need to be aware that currency volatility increases risk because their outstanding mortgage balance can increase - as well as decrease - once it has been secured in a different denomination.

Finding a currency with a the lowest base rate and pegging the debt to it is not simple as these currency mortgages are not available to every one. The client must have a large proportion of his salary paid in a currency other than dirhams and/or have property outside of the UAE to remortgage or purchase.

For investors is definitely a better option to refinance to a dollar mortgage, especially if the local lenders are not charging very high exit fees from their current dirham's arrangement.

(By Gergana Mineva, Editor)