Types of Mortgages in Dubai

What’s a Mortgage?

An agreement known as a mortgage is made between you and a lender and gives the lender the right to seize your property in the event that you are unable to pay back the amount you borrowed plus interest.

To purchase a property or borrow money against the value of a home you currently own, you can use a mortgage loan.

One of the most thrilling things you can do in life is purchase your ideal home.

As you might expect, buying the ideal property in Dubai entails a lengthy process that includes looking through internet listings, meeting agents, speaking with friends and family, visiting the property in person, and finally deciding. It’s time to investigate the mortgage options in Dubai once you’ve chosen the ideal home.

The following section will provide a summary of the various types of mortgages available in Dubai, along with the repayment options and terms that go along with them.

 

MORTGAGES TYPE IN DUBAI

• FIXED-RATE MORTGAGE

An interest rate on a fixed-rate mortgage is predetermined, as the name suggests, before the loan period ever begins. Additionally, during the pre-agreed time, which is often fewer than five years, this rate remains constant.

If you’re fortunate, you can come across a lender who offers a fixed rate for the duration of the entire loan repayment time.

The borrower benefits from this arrangement in a very visible way. First, planning your financial expenditure over a long period of time is simpler. You will be forced to pay the initial rate even if the market conditions change and interest rates decline. With a fixed-lower rate, you will have an advantage if interest rates rise.

To comprehend the many forms of mortgages in Dubai, a borrower must research the market or seek professional assistance. A fixed-rate mortgage isn’t the ideal choice if rates are anticipated to drop soon.

• VARIABLE RATE MORTGAGE

For variable or adjustable interest rate mortgages, the interest rate may change over the course of the repayment period based on the state of the market. Depending on the circumstances, borrowers may wind up receiving a lucrative bargain or paying a higher rate of return. Make sure you have the financial flexibility to handle any increase in repayments if you choose this form of loan.

Mortgages with adjustable rates are further separated into two groups.

• DISCOUNTED RATE MORTGAGE

Among the several mortgage options available in Dubai, having a mortgage with a discounted rate could be the best choice in specific circumstances. Compared to the Emirates Interbank Offered Rate, interest rates are lower (EIBOR). Additionally, the deal is often limited to first-time buyers.

For instance, you will get a 1% reduction if the lender’s interest rate is 4%. Consequently, your interest rate is 3%. However, your interest rate will increase if the lender’s base rate increases to 5%. However, you might profit if you’re fortunate and the basic interest rate declines.

Typically, a discounted rate is used for a two- to five-year period. Your payment will then be based on the lender’s basic variable rate going forward. Discount mortgages for a “lifetime” are nevertheless occasionally offered as well.

You can be charged an early payback fee if your loan is repaid before the agreed-upon term. In Dubai, this is most likely the finest mortgage option for first-time homebuyers.

• CAPPED MORTGAGE

In Dubai, capped mortgages are another type of mortgage where the borrower receives a benefit. A maximum cap is established prior to the start of the loan term, but your payments will be made at a variable rate. The capped duration is frequently only temporary. Depending on the state of the market, interest rates may rise, but there is a cap above which they cannot rise.

This gives you the opportunity to, at least initially, plan your finances. However, limited mortgage rates will cost you more than reduced mortgage rates.

• REMORTGAGE

On an existing mortgage, you can obtain a new loan or even transfer the old mortgage through a remortgage. It’s interesting that you can either find a new lender or the same one might provide you this new loan. People choose to remortgage even though the initial loan’s interest rate is modest because they require more funds for other purposes.

Remortgaging is typically chosen by consumers to obtain a lower interest rate or a longer payment term. When applying for a remortgage, a closing fee must be paid.

• OFFSET MORTGAGE

A typical mortgage connected to one or more deposit accounts through an offset mortgage. Under an offset mortgage, borrowers can link their savings, checking, and credit card accounts with the loan account; the more money they have in their account, the less interest they must pay.

The linked account’s funds are accessible to you. If you choose traditional overpayments, however, the money will be given to your lender right away.

The interest rate on the offset mortgage is somewhat higher than that of traditional mortgage plans. Required paying an annual fee at the end of the year. As a result, there are various financial factors that you would have to consider while selecting mortgage products in Dubai.

• INVESTMENT MORTGAGE

A type of loan taken out purchasing home for investment purposes. Commercial real estate includes structures with five or more units, and these assets are subject to distinct regulations.

In Dubai, there are a few hot investment spots. Purchased apartment villas in neighborhood with the best needs.

• NON-RESIDENT MORTGAGE

This sort of mortgage is accessible to non-UAE residents, as the name implies.

• • Only citizens of a country that is part of the approved list of a financial institution can apply
  • Salaried or self-employed
  • Have a minimum monthly income (after tax deductions) as defined by the bank

Typically, in these situations, banks will only loan up to 50% of the property. Additionally, limited loan’s term, and the payments significantly increasing each month.

 

MORTGAGE BY PROPERTY TYPE

• RESIDENTIAL MORTGAGE

A type of loan taken out by a person purchasing a residence. Prohibited use of property for business or rental purposes. For home mortgage, selecting variable or fixed interest rate.

These mortgages typically have extended terms. Remortgage applications are also acceptable.

• COMMERCIAL MORTGAGE

Commercial mortgage essentially a mechanism used by business owners purchasing real estate for their activities. Your primary address will not be this property. It will be a corporation asset instead. An interest rate on a commercial mortgage is typically lower than one on a business loan. The asset you buy serves as collateral.

Initial payments to the lender are large deposits. Therefore, you must determine whether it is possible to withdraw funds from the company without having a negative effect.

• LAND/CONSTRUCTION MORTGAGE

In Dubai, mortgage type secured loan funding the land purchase, structure renovation or construction. With this mortgage, receiving money required advance for each part of project. Also, remember that it’s a time-consuming process, and loan doesn’t cover design phase. So, initial investment is yours.

 

MORTGAGE REPAYMENT OPTIONS

• INTEREST-ONLY REPAYMENTS

Generally seen with off-plan properties and offered for a maximum of five years, interest-only repayments will see you pay just the interest on your loan – not the capital. You can repay the capital together or have your loan remortgaged at the end of your term.

• CAPITAL & INTEREST REPAYMENTS

This is the most popular type of repayment where the borrower pays the EMI that covers the capital and the interest each month over a pre-agreed time frame.

Typically, the initial years of the loan period will have a higher rate of interest. However, subsequent years see the interest go down and the money towards the actual loan increase. It is common practice in the UAE for mortgage repayment periods to be up to 25 years or until 65 years for salaried expats or until 70 years of age for UAE nationals and self-employed expats – depending on whichever comes sooner.

• DOWN PAYMENT

Your initial deposit will vary depending on the bank, mortgage broker, and type of loan you choose to go with. Usually, if you are an expat purchasing a property for personal use, your down payment will be 25% to 35% of the property value. However, off-plan properties usually require a larger down payment of up to 50%. Check out our tips on how to save money for a down payment. There is also a minimum salary requirement for home loans that you must meet to be eligible.

• MORTGAGE LIFE INSURANCE

This insurance covers your mortgage repayments in the unfortunate case of a borrower’s demise. This insurance provides borrowers with peace of mind should they have any dependents who plan on residing in the mortgaged asset after the borrower’s death but can’t make the payments. Offered protection to those with disabilities and terminal illnesses.