Interest Rate Risk
Interest rate risk is the exposure to financial loss from adverse interest rate movements, particularly relevant for variable rate mortgages where rising rates increase payments and reduce affordability.
| Risk Sources | Impact |
| Central bank policy | Rate hikes to control inflation |
| Economic growth | Higher rates during expansion |
| Global markets | International rate movements |
| Bank margin changes | Lender-specific adjustments |
| Exposure Quantification | AED 2M Loan Example |
| Current rate | 5% (AED 11,684 monthly) |
| 1% increase | 6% (AED 12,886 monthly, +10.3%) |
| 2% increase | 7% (AED 14,154 monthly, +21.1%) |
| 3% increase | 8% (AED 15,474 monthly, +32.5%) |
| Mitigation Strategies | Approach |
| Fixed rate period | Lock rates for 3-5 years |
| Rate cap | Limit maximum increase |
| Lower LTV | Reduce total exposure |
| Stress testing | Budget for 2-3% increase scenarios |
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