There are 5 types of mortgages available in the UAE
Purchasing a home is more than simply a financial transaction; it is also an emotional adventure. Everybody has a different idea of what their ideal house would look like and the level of safety and lifestyle it would offer them and their families. While we often get carried away and tend to put off the more time-consuming but equally crucial phase of choosing finance and payment alternatives, we frequently spend a lot of time daydreaming about what our ideal home may look like. Property acquisition is a common ambition for many people, but the procedure can frequently be drawn out and challenging from the first until the keys are handed over. It becomes a drawn-out and difficult procedure as people look for the ideal apartment or villa, complete the paperwork, tour various locations, and hold meetings. The demand for property investments in Dubai real estate has grown among both domestic and foreign buyers. There is a need for real estate mortgages along it. In Dubai, there are various sorts of mortgages, so choosing the proper one is crucial.
Great Dubai provide easy guide payment plans for our homebuyers and investors, allowing them to pay as part of a 50/50 payment plan. Many of our clients pay the remaining 50% with a mortgage. For that reason, we have compiled a Great Dubai guide to the different types of mortgages available in the UAE.
Background on Mortgages
In the simplest words, a mortgage is a loan you would obtain from a bank or another person that would grant them the right to seize your property if you failed to repay the loan amount plus interest. Getting a mortgage is a common way for people to buy homes.
UAE Central Bank
The UAE’s Central Bank sets interest rates. The central bank will take the highest and lowest rate from each business day’s supply of bank interest rates, then average the remaining rates. At 11 a.m. every day, they will then post the rate on their website.
How Do Banks Calculate Their Rates?
Varied banks or lenders have different rates since certain banks are connected to the Emirates Interbank Offered Rate (EIBOR). These rates apply to what banks charge one another when they borrow money. The EIBOR is a group of 10–12 banks whose task it is to control these rates in order to maintain stability. However, the market’s liquidity or the price of oil could potentially cause the rates to change. Rates increase when liquidity is limited, while rates decrease when deposits increase.
Types of Mortgages Available In the UAE
There are several mortgage choices available depending on your needs and circumstances. The amount, length of duration, and type of mortgage are other variables that affect interest rates in addition to those already listed.
Fixed Rate Mortgage
In a fixed-rate mortgage, the interest rate is decided upon before the loan period begins. Additionally, this rate does not alter during the pre-agreed timeframe, which is often less than five years. Although there are clear advantages to this arrangement, it is advisable to examine the market or get professional advice before making a decision because a fixed-rate mortgage may not be the best option if interest rates appear to be falling. You would still be paying the initial rate if the business environment changed and prices decreased. In contrast, the fixed-lower-rate would be advantageous if prices rose. The interest rate won’t change no matter what happens in the market.
Variable Interest Rates or Floating Interest Rates
During the course of the payback period for mortgages with variable interest rates, the interest rate may change based on the state of the market. Depending on the state of the market, you can be presented with a wonderful offer or even have to pay a higher rate of return. Based on the situation of the market, your rate could abruptly rise or fall at any time. Make sure you have the financial means to handle any increase in repayments before applying for this type of loan.
An option for those who want a floating interest mortgage but are concerned that their rates will rise to a level they cannot pay is a capped mortgage. Other than fixed rates, the other rate kinds with stable payments are capped mortgages. The capped mortgage was presented as a limited-time offer and is identified by the fact that a maximum rate is determined before the loan period begins. If the market rises above that threshold, it won’t affect you; however, if the market falls, you will gain. Regardless of the market, the monthly instalment would not exceed the predetermined limit.
An offset mortgage, a relatively new phrase that only a few lenders provide in the UAE, combines a regular mortgage with one or more savings accounts at the same financial institution. Under an offset mortgage, loan holders can link their savings account, checking account, credit card account, and loan account. The value of the debt is reduced by an offset of the amount credited if any monies on some of the accounts are paid. Therefore, by periodically balancing the amount, you may end up paying a reduced rate of interest over time.
Remortgaging is the process of taking out a new loan against an existing mortgage, to put it simply. In the UAE, it is known as a balance transfer. It’s interesting that you can either discover a new provider, or the same one, can provide you this new loan. People sometimes apply for a refinance even though their original loan had a low interest rate because they need the extra cash. You have more mortgage options the lower your loan-to-value (LTV) ratio is. Divide the amount of your remaining mortgage to determine your LTV.
What Banks Provide Mortgage Loans?
Many banks in the United Arab Emirates offer mortgages to locals and foreign investors, including:
- Emirates NBD
- Standard Charter Bank
- Mashreq Bank
For this kind of repayment arrangement, financial institutions in Dubai often grant UAE citizens and foreign residents a maximum mortgage duration of up to 25 years.