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How interest rates have changed over last year and what that means practically for home buyers

I want to do a quick illustration to show how interest rates have changed over last year and what that means practically for home buyers. So, what can we see here is in 2019 if you borrowed a million Dirhams you’d be borrowing it over three years at a roundabout 4%. Now borrowing a million Dirhams would mean you’d be purchasing a house worth about 1.2m. You’d need to provide the 200,000 yourself, and the rest you can borrow. At 4% your interest, so the bit the bank will keep and you’d never receive back is about 39,000 here. Your principle, so the amount you paid off your loan, so you’d receive that back if you sold your house at the same price you bought it, it is 23,773. So, your total yearly repayments of a loan of a million Dirhams would be 63,340. And again, it is worth noting that your property value would be 1.2m.

Now in 2020 that dropped by about a percent so now you can get a 3-year fixed for a roundabout 3%. So again, if you’re borrowing a million Dirhams, what does that look like now? So now your interest repayment, the bit you pay to the bank and you never see again, is only 29,000 – 9,941 less than it was last year, that’s a 25% reduction. Your principal payment is slightly higher for reasons I won’t go into. So that is 27,278 and your total payments for the year on borrowing a million Dirhams is 56,904. That is a saving of 6,436 or 10%. So, this is probably the figure here that you want to look at. Even with a reduction of 1% I mean clearly from 4% to 3%, that is a 25% reduction. You can see that immediately here with an almost 10,000 Dirham reduction in the amount that you’re paying in interest per year to your bank. So, these figures are really interesting if you want to do them for your own potential purchase.

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