What is a Mortgage and What Are The Types of Mortgage available in UAE?

A mortgage is a loan that you can obtain from the bank, finance companies, or other financial institutions that provides mortgage loans. A mortgage allows you to buy or build a home or buy a studio flat in Dubai when your original savings aren’t sufficient to complete the construction or make the purchase. The property itself is the collateral of this loan which means that the loan provider has the authority over the property for which the loan was granted to recover the money of the loan in case the borrower was unable to make the monthly payments.

The mortgage consists of two primary elements and they are principal and interest. The principal is the initial amount of money the borrower has from the lender and the interest is the percentage amount that is added to the original amount. The value of this percentage varies according to several factors such as the amount required as a financing and the agreed tenor and so on.

There are several mortgage plans available to both UAE nationals and expatriates, and they are offered to those who wish to purchase family homes from the collection of houses for sale in Dubai or investors aspiring to have an investment by buying a studio flat in Dubai. What are these plans and what are the differences between them?

The fixed-rate mortgage: you can have this kind of loans to buy apartments in Dubai and it provides stability in addition to ensuring that you accurately know the value of the total amount that you are to pay at the end of the tenor. as the ratio applied to the amount of the debt remains the same throughout the repayment period, no matter how the interest rates change during this period. Although this plan has positive aspects in terms of the low risk, stability and clarity of the plan ahead from the first installment to the last, if the interest rates fall during the time of repayment you will have to continue paying the initial percentage on which you agreed upon on time of getting the loan. It’s good to keep that in mind before deciding the mortgage plan you are going to go for to buy apartment in Dubai.

 

Variable rate mortgage: In this type of loans that you can take to buy apartments in Dubai the interest paid on the total amount depends on the prevailing interest rate and changes with its change, and thus the monthly installment you pay changes accordingly. It may increase or decrease at each due date according to the change in interest rates as determined by Eibor (the Emirates Interbank Offered Rate).

This payment plan carries a degree of risk in case of the occurrent of an increase in interest rates during the loan repayment period, which makes knowing the accurate amount repaid as a total hard to calculate. But it may as well include a positive aspect in the event of non-rise, or better yet, if lower interest rates were applied on mortgages during the repayment period. People tend to take this type of loan when buying houses for sale in Dubai when the interest rates are relatively high or when there is an expectation that interest rates will decrease in the near future.

Remortgage: Let’s say that after obtaining a mortgage from a mortgage loan provider to buy your studio flat in Dubai or other type of properties and houses for sale in Dubai, then found a more suitable financing plan to your circumstances provided by another mortgage loan provider, in this case you can transfer the mortgage to this institution according to certain conditions and this is called a remortgage.

But what is the percentage that the bank or finance companies would give you over the total property value? And what is the highest value of the mortgage loan that the bank gives you?

The value of the loan granted depends on the value of the fixed income of the loan borrower, such as salary, verifiable business income or rental income. While unstable income or End of Service Benefit for example are not taken into account. the highest value that can be granted as a financing loan is equivalent to the annual income of the borrower for an eight-year when the loan borrower is a citizen, and seven years for non-citizens.
mortgages in the UAE are specified with a maximum tenor of twenty-five years, and the loan must be repaid before the borrower of the loan reaches the age of sixty-five if a UAE national who is an employee and seventy years for UAE nationals who are self-employed. While for non-citizens the last repayment should be before the loan applicant reaches the age of sixty-five. 

The percentage of the total property value that a bank gives you, varies according to several factors and they are classified according to the following:

When purchasing a ready property:
When purchasing houses for sale in Dubai for the first time, a UAE national gets a mortgage of 80% of the value of the property if its total price is less than 5 million dirhams, which means that the buyer must provide a down payment equal to 20% of the value of the property he intends to buy. But if the property price is over 5 million dirhams a UAE national would get a mortgage that equals 70% of the value of the property, which means that the value of the down payment that the buyer must possess to buy the property is 30% of the total value of the property. In the event that this purchase is not a first buy property, the mortgage would cover 65% of the total property value, whatever its value is.
Expats who are living in Dubai and want to buy a family home instead of renting, or even investors outside the country who want to own an investment property within Dubai, will receive 75% of the total property value when purchasing a property for the first time if the value does not exceed 5 million dirhams, and this makes the value of the down payment 25% on the buyer part. but in case the property value exceeds this amount, the mortgage will be a maximum of 65% of the value of the property, making the down payment due equal to 35%.

When purchasing an off-plan property:
The above percentages apply to ready to move in properties, but in case of buying an off-plan property, the percentage of mortgage on the total property value whether for a UAE national or an expat, equals 50% of the total property value, whatever this value is.
It is very important to thoroughly review all the details related to real estate loans, their conditions, the interest rate applied to them, and all information related to this subject, which can be considered one of the most important decisions and steps that you take towards owning your own home.

 

For more related topics click on the links below: 

How To Know If You Qualify For A Mortgage Loan In Dubai

Buying An Off-Plan Property With A Mortgage In Dubai

Choosing Between Off-Plan And Secondary Market Properties