When it comes to purchasing a home in the UAE, one of the biggest decisions you’ll have to make is how to finance it. There are a variety of mortgage options available in the UAE, each with its own set of benefits and drawbacks. Understanding these options can help you make an informed decision and find the best fit for your needs.
At MFI Group Consultancy, we understand the importance of finding the right mortgage and we are committed to helping our clients navigate the complex world of home financing. As one of the leading companies in the UAE for mortgage UAE services, we have the knowledge and experience to guide you through the process and find the best option for you.
One of the most popular options for mortgages UAE is the fixed-rate mortgage. This type of mortgage allows you to lock in a set interest rate for the life of the loan, providing stability and predictability when it comes to your monthly payments. Variable rate mortgages Dubai, on the other hand, offer more flexibility but also come with more risk as the interest rate can fluctuate.
Another important factor to consider when comparing mortgages UAE is the loan-to-value (LTV) ratio. This ratio compares the amount of the loan to the value of the property and can affect the interest rate and other terms of the mortgage. It’s important to consider this ratio when comparing mortgages Dubai and other parts of the UAE.
When it comes to finding the best mortgage options available in the UAE, there’s no one-size-fits-all solution. That’s why at MFI Group Consultancy, we take the time to understand your unique needs and goals and work with you to find the best mortgage for your situation. Whether you’re a first-time homebuyer or a seasoned property investor, we have the expertise to help you make the right decision.
We also offer a Mortgages UAE comparison service to help you understand the best options available in the market and make an informed decision. With our expert guidance, you can be sure that you’re getting the best deal on your mortgage and taking advantage of the most competitive UAE mortgage rates.
If you’re ready to take the next step in your home-buying journey, contact MFI Group Consultancy today to speak with one of our experts. We’ll work with you every step of the way to help you find the perfect mortgage for your needs.
Mortgage options available in the UAE
Potential homeowners can choose from different types of mortgages Dubai. Given that it is a long-term commitment, you must understand the pros and cons of each offer before selecting the one that best suits your needs.
Are you looking to buy a home in Dubai? Here are the different mortgage types available in the city.
FIXED-RATE MORTGAGE UAE
As the name suggests, the interest rate is set before the loan term’s onset in a fixed-rate mortgage. Also, this rate doesn’t change throughout the pre-agreed period, which generally is less than five years. However, you might be lucky enough to find a lender offering a whole loan repayment period at a fixed rate.
There are clear advantages for the borrower in this system. First, it’s easier to plan your financial outlay for many years, at least. If the market situation changes and interest rates go downward, you will be stuck with the original rate. However, if the rates go higher, you’ll be at an advantage with your fixed-lower rate.
As a borrower, you must study the market or seek expert help to understand mortgage UAE types in Dubai. If rates are likely to go down soon, signing up for a fixed-rate mortgage isn’t the best option.
VARIABLE RATE MORTGAGE Dubai
The interest rate can change throughout the repayment period for variable or adjustable interest rate mortgages UAE depending on market conditions. Borrowers can get a lucrative deal or pay a higher rate of return depending on the situation. If you opt for this type of loan, make sure you have the financial liquidity to handle any increase in repayments.
Adjustable UAE mortgage rates are further subdivided into two categories.
DISCOUNTED RATE MORTGAGE
In some cases, getting a discounted-rate mortgage can be the best option among the different mortgage types in Dubai. Interest rates are lower than the Emirates Interbank Offered Rate (EIBOR). And the offer is reserved for first-time buyers generally.
For instance, if the lender’s interest rate stands at 4%, you will receive a discount of 1%. Your interest rate, hence, is 3%. However, if the lender’s base rate rises to 5%, your interest rate will increase too. But if you are lucky and the base interest rate drops, you will likely benefit.
Discounted rate is generally applied for a two-to-five-year period. After this time, your payment will depend on the lender’s base variable rate. However, “lifetime” discount mortgages UAE are also available at times.
If your loan is repaid before the loan term, you may be required to pay an early repayment charge. This probably is the best type of mortgage for first-time homebuyers in Dubai.
CAPPED MORTGAGE
Mortgages Dubai also includes capped mortgages UAE where the borrower has some advantage. You will make payments at a variable rate, but a maximum cap is set before the loan term begins. Often, the capped period can be for a limited time. The interest rates can go up depending on the market conditions, but a limit is applied beyond which the rate will not increase.
This allows you to do some financial planning, at least initially. However, you will be paying extra with capped mortgage rates than discounted mortgage rates.
REMORTGAGE
You can get a new loan on an existing mortgage or even transfer the existing mortgage with a remortgage. Interestingly, the same lender can offer this new loan, or you can find a new one. Even when the interest rate is low on the initial loan, people opt for a remortgage as they need additional funds for other uses.
Most people opt for remortgages to get a lower interest rate or a longer payment term. A closing fee is to be paid when going for a remortgage.
OFFSET MORTGAGE
An offset mortgage involves linking a traditional mortgage with one or more deposit accounts. Borrowers can link their savings/current/credit card and the loan account under an offset mortgage, and the more money they have in their account, the lesser they have to pay in interest.
You can access the money from the linked account. However, if you opt for conventional overpayments, the money will be directly transferred to your lender.
The offset mortgage interest rate is slightly higher than conventional mortgage plans. Plus, at the end of the year, you may have to pay an annual fee. Hence, there are some financial aspects that you may have to consider when choosing mortgage types in Dubai.
INVESTMENT MORTGAGE
A loan acquired to buy a property for investment is known as an investment mortgage. The goal here is to generate a new revenue stream by either renting out the property and getting work done or reselling it. A multi-unit building with two to four units or a single-family home is considered in this case. Buildings with five or more units are considered commercial real estate, and different rules apply to such properties.
There are some popular areas for investment in Dubai. You can buy apartments or villas in a neighbourhood that suits your needs best.
NON-RESIDENT MORTGAGE
As the name suggests, this type of mortgage is available for non-residents of the UAE. Such mortgages are approved for customers who match the following criteria.
- Only citizens of a country that is part of the approved list of financial institutions can apply
- Salaried or self-employed
- Have a minimum monthly income (after tax deductions) as defined by the bank
Generally, banks only finance up to 50% of property in such cases. Moreover, the loan term is short, and monthly payments are also higher.
For further details, you can read about our guide to a non-resident mortgage.
MORTGAGE BY PROPERTY TYPE
Mortgage types in Dubai are also categorized according to property types.
RESIDENTIAL MORTGAGE
A residential mortgage is a loan acquired by an individual to buy a home to live in. This property cannot be rented out or used for commercial purposes. You can choose between a variable or fixed interest rate for a residential mortgage.
Once you have paid off the mortgage, you will have full ownership of the property. Typically, these mortgages Dubai are long-term. One can apply for a remortgage as well.
COMMERCIAL MORTGAGE
A commercial mortgage is basically a tool business owners use to buy a property for their business operations. This property will not be your primary address. Instead, it will be a company asset. Typically, a commercial mortgage has a lower interest rate than a business loan. The property you purchase is used as collateral.
Substantial deposits are paid to the lender initially. So, you have to work out if you can take out money from the business without any negative impact.
LAND/CONSTRUCTION MORTGAGE
In Dubai, this mortgage type is a loan secured to fund the land purchase, structure renovation or construction. With this mortgage, you receive the money required in advance for each part of the project. Also, remember that this is a time-consuming process, and the loan does not cover the design phase. So, the initial investment is yours.
MORTGAGE REPAYMENT OPTIONS
There are different mortgage repayment options out there. Borrowers often use a combination of options to pay back their loan, as per the agreement with the bank.
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 AND 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 ex-pats or until 70 years of age for UAE nationals and self-employed ex-pats – 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 ex-pat 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. Protection is also offered to those with disabilities and terminal illnesses.
FAQS
SHOULD I BUY A PROPERTY ON A MORTGAGE OR SETTLE FOR CASH PAYMENTS?
Most people buy property on a mortgage, but some prefer to go ahead with a cash payment. Here’s our guide to buying a property in cash vs mortgage for anyone deciding between the two options.
HOW CAN I GET A MORTGAGE IN DUBAI?
Before applying for a mortgage, it’s essential to get a pre-approval letter from the bank to know more about the maximum amount of housing finance you qualify for.
Here’s some expert advice on how to get a mortgage in Dubai. We have also answered the most frequently asked questions related to mortgages UAE. Take your time to evaluate the different mortgage types before signing a document. Eventually, it is about getting yourself the best deal.
MFI Group has partnerships with many mortgage brokers to provide instant pre-approvals online in Dubai and other parts of the UAE through the ADCB Dream Home Platform. Moreover, you will have to follow these steps to buy a property in Dubai.
WHAT ARE EQUATED MONTHLY INSTALLMENTS (EMI)?
Probably the most important term on this list, your EMI is how much you will have to pay back each month on a particular date. Your EMI covers both your interest and principal loan amount over a fixed period until you’ve entirely paid off the loan.
WHAT IS A LOAN-TO-VALUE RATIO (LTV)?
Commonly known as the LTV, this is how much you borrow in relation to the actual real estate asset. For example, if your LTV is 70%, this means that you have made a down payment of 30% of the property price and will be taking out a loan of 70%.
WHAT IS AN EARLY REPAYMENT CHARGE (ERC)?
If you want to pay back your loan before the agreed date, you will be subject to a fee. This fee or penalty will be based on whether you have a fixed or variable mortgage. You can read more about the benefits of flat vs. reduced interest rates for further clarity on the type of interest plan.
WHAT IS AN EQUITY RELEASE?
Equity is the difference between what you owe the bank and the actual value of the property you’ve mortgaged. As time goes by (and you keep up with your payments), what you owe will naturally go down, allowing you to increase equity in the asset. This is also the case if the value of your investment rises thanks to market trends. If you build up equity in your property, you can ‘release’ it to fund other investments.
Home loans in Dubai are an option too. If you’re interested in buying a home, learning more about the common real estate terms can be helpful.
For deeper insights into real estate trends on mortgages UAE, don’t forget to follow our social media accounts. links can be found at the top
