Understanding EIBOR: Interest rate benchmark in the UAE
If you plan on taking a loan in the UAE, you may have encountered the term EIBOR. The Emirates Interbank Offered Rate, commonly called EIBOR, is the benchmark interest rate for lending between banks in the UAE market. Calculated daily, it determines the interest rate for transactions, including mortgages, personal loans and Ijara (Islamic finance).
Let’s take a quick look at EIBOR, how it is calculated and how to access the day’s EIBOR rates.
What is EIBOR
EIBOR, or Emirates Interbank Offered Rate, is a fixed rate at which banks in the UAE lend to each other. The Central Bank of the UAE calculates it daily (and publishes it on its site) as a reference for market interest rates.
Major UAE banks use EIBOR to calculate interest rates for short-term loans to other banks. It is also the reference rate used by borrowers and lenders in the UAE for financial transactions, including personal loans, mortgages, car loans, etc.
If you’re planning to buy or sell property in the UAE, knowing the EIBOR rates can be quite useful when calculating the interest.
How are EIBOR rates calculated?
The EIBOR rate is calculated by taking an average of a panel of nine banks’ daily rates in AED (United Arab Emirates Dirham). When calculating this rate, the bank eliminates the two highest and lowest rates and takes the average of the remaining rates.
Previously, EIBOR was calculated by the UAE Central Bank. After April 15th, 2018, this was outsourced to Thomson Reuters Ltd. However, the bank still has the interest rates from October 2009 on its site, along with updated daily interest rates.
To put this in simple terms, if a bank needs money, it borrows from another bank. When the lender reports its offered rates the next day, the interest rate on the loan is incorporated into EIBOR.
The EIBOR rate is set every business day, excluding Fridays and Saturdays, at 11:00 am UAE time.
Where can I find the EIBOR Rates?
You can find the EIBOR rate today on the UAE Central Bank’s website. It is presented in a table, graph form and 3-month EIBOR rates.
FAQs about EIBOR
What does a rising EIBOR signify?
When the EIBOR increases, the cost of borrowing rises too. This means higher loan repayments for the borrower, causing financial stress for businesses or individuals.
Can I get a loan with a lower interest?
A discounted mortgage can help you get a loan with interest rates lower than EIBOR. It is one of the types of mortgages in the UAE typically given to first-time home buyers at a discounted rate of two to five years.
What is a fixed-rate mortgage?
A fixed-rate mortgage is when the interest on the loan is fixed for a specific time (typically between one and five years). The interest rate can only revert to a higher value (above the bank’s rate or EIBOR rate) after this period passes.
Understanding UAE mortgage terminology is key when making big financial decisions. Stay updated on the latest in the real estate world with MyBayut, the region’s biggest property blog.
