Mortgage Rate
Synonyms: Home Finance Rate، Mortgage Interest Rate، Profit Rate، APR
Last updated: 2026-09-25
Short Definition
A mortgage rate is the annual cost rate of a home finance that the financier charges for deferred payment; in Islamic finance it is called the profit margin or term cost, and it must also be shown as an annual percentage rate (APR) that includes unavoidable fees.
Overview
Legal Basis
Rate disclosure is governed by Article 2(7) of the Real Estate Finance Law (Royal Decree No. M/50 dated 13/8/1433H), which empowers SAMA to set the principles for disclosing finance cost and its calculation method so consumers can compare prices, and by Article 9 of its Implementing Regulation, which requires the term cost, reference rate, conditions for changing it and the APR calculated under the Implementing Regulation of the Finance Companies Control Law (Royal Decree No. M/51 dated 13/8/1433H).
Practical Example
A family in Jeddah compares two offers to finance SAR 900,000 over 25 years. Offer one is fixed at 5.25% with an installment of about SAR 5,393.23 for the whole term and total profit of about SAR 717,969. Offer two is variable, starting at 4.75% with an initial installment of about SAR 5,131.06, repriced every five years. After five years the outstanding balance is about SAR 794,006; if the rate rises to 6.25% the installment becomes about SAR 5,803.62, and if it falls to 3.75% about SAR 4,707.57. The family weighs an initial saving of SAR 262 a month against the risk of an increase of up to about SAR 410 a month, and asks both lenders for the APR and total amount payable in writing.
Common Mistakes
- ✗Confusing a flat rate calculated on the full original principal with the APR, which is the standard comparison measure.
- ✗Choosing variable-rate finance for its lower initial installment without stress-testing affordability if the rate rises at repricing.
- ✗Leaving administrative fees and insurance out of the comparison, although unavoidable fees are included in the APR.
- ✗Assuming the central bank directly sets retail mortgage rates, when it sets policy rates and each lender prices its own products.
- ✗Not reading the reference-rate clause and repricing dates in a variable-rate contract.
International Differences
In conventional markets the rate is called interest, and regulators usually require a standardised annual rate (the APR in the US, a similar measure in Europe). In the UAE, Egypt and Turkey, rates fixed for an initial period and then variable are common, alongside Islamic products that call the return profit or rent. Saudi Arabia differs in that the riyal is pegged to the dollar, so policy rates usually move with the US Federal Reserve, and virtually all home finance is Sharia-compliant with mandatory APR disclosure.
