Dubai’s real estate market attracts buyers from all walks of life. Paying the amount upfront isn’t possible if you are short on cash. That’s where different types of mortgages in Dubai can become a good option to buy a property.
Here is a detailed guide on mortgages to help you choose the best-suited option.
- Mortgages Types In Dubai
- Mortgages by Residency Status
- Mortgage By Property Purpose
- Other Mortgage Types
- FAQs
Mortgages Types In Dubai
Banks in Dubai offer all kinds of mortgage products targeting the wants and needs of their prospects. Below, we’ll be looking at only common types of mortgages in Dubai. So, it’s important to note that some options fall outside these common categorisations.
Interest Rate Type
This is by far the most common type of mortgage loan in Dubai, classified by the nature of the agreed-upon interest rate in the contract. As per the UAE mortgage law, here are the types of interest rates, including fixed and variable mortgage rates.
Fixed Rate Mortgage
Fixed Rate mortgages remain the most popular choice for property buyers. Opting for this option will get you a fixed interest rate for a limited repayment period. This allows you to have predictable monthly payments throughout the fixed period, usually lasting up to 5 years in Dubai.
In other words, mortgage obligations won’t be affected by changing market conditions. Besides, you can get more favourable fixed rates if you agree to do salary transfers. However, once your fixed period ends, the interest rate jumps to a higher “reversion rate.” This rate can be even steeper than the prevailing variable rate.
Perks of Fixed-rate Mortgage
- It is best suited for individuals looking for stability since monthly payments remain unchanged.
- Payments are unaffected by the rising EIBOR, but only for a limited timeframe.
So, applicants who can afford higher monthly payments and short repayment timelines near the five-year mark will benefit the most.
| EIBOR: The Emirates Interbank Offered Rate (EIBOR) functions as the UAE’s foundational interest rate. The UAE Central Bank publishes this rate daily and serves as a benchmark for interest rates on home loans in the UAE. |
Short-Term Mortgage
All fixed-rate mortgages come with a time limit. In Dubai, your mortgage can last up to 25 years for non-commercial real estate properties, but your fixed rate period is limited to 1-5 years. Therefore, locking your fixed rate at the lower end of that range (1-3 years) is considered short-term.
Currently, you can get a rate of 3.89% for three years. As a rule of thumb, shorter fixed periods have more favourable interest rates.
Long-Term Mortgage
Anything approaching the five-year mark would be considered a long-term fixed period for Dubai’s market. Right now, you get an interest rate of 3.99% fixed for five years, which is slightly higher than the short-term rate.
Variable Rate
As the name implies, variable-rate mortgages will change constantly depending on the EIBOR period you choose. Unlike fixed-rate mortgages, where the interest rate stays the same, variable rates fluctuate based on the EIBOR.
Simply, the interest portion of your monthly payment will rise when EIBOR rises. Banks in Dubai offer variable prices for a one to six-month EIBOR period. Additionally, banks charge a fixed margin on top of your EIBOR (i.e. EIBOR + Fixed Margin), constituting your total interest.
Mortgages by Residency Status
All over the world, mortgage options are directly linked to your residential status. In Dubai, national residents can get the most benefits.
These benefits include easier eligibility conditions and a more favourable LTV ratio. Despite this, the interest rates will remain similar regardless of the residency status.
| LTV Ratio: When applying for a mortgage, the amount you can borrow depends on the Loan-to-Value Ratio (LTV). It reflects how much the bank is willing to finance compared to the total property price. Example: An LTV ratio of 70% means the bank will loan you 70% of the property value. This means that you are required to pay the remaining 30% upfront as the down payment. |
UAE National
UAE nationals benefit from the lowest down payment requirement, at just 15%, for first-time residential properties. Additionally, UAE nationals, who are first-time home buyers, get access to Government subsidized mortgage options available exclusively to them.
UAE Resident
UAE residents who are expatriates get a maximum LTV ratio of around 80%, i.e. a 20% downpayment. But they get more favourable terms for working in UAE, compared to non-residents. Additionally, one of the ways expats can pay their mortgage is via their employer.
Non-Resident
The LTV ratios for non-residents start from 60%, as offered by the banks. The law allows them to be the same as residents, but practically all options have a high LTV. Moreover, options for acquiring property are limited for non-residents, as they can finance homes only in designated areas.
Mortgage By Property Purpose
Mortgages for properties in Dubai can have significantly different requirements depending on the property’s purpose (residential, commercial, etc.).
These variations are largely driven by Dubai’s specific regulations for different property types.
Residential
A residential mortgage is among the types of home loans used to finance the purchase of a property that you intend to live in as your primary residence.
It’s the best option for an individual seeking to buy a first home. Residential mortgages offer more favourable terms compared to mortgages on a secondary property.
Commercial
Commercial mortgages provide financing for the purchase or development of income-producing properties. These properties include offices, industrial buildings, hotels and even mixed-use developments. Commercial mortgages in Dubai have a maximum duration of 15 years, compared to 25 years for residential mortgages.
Investment
Individuals seeking real estate for investment purposes can benefit from this type of mortgage. These mortgages help finance various types of residential properties suitable for rental income or resale. Single-family homes and multi-unit buildings with two to four units are popular choices.
Land and Construction
A land and construction loan allows you to secure a single loan for both the land purchase and the subsequent construction costs. Unlike traditional mortgages for existing homes, this loan disburses funds in phases. You’ll receive money for the land upfront. Besides, additional funds will be released upon meeting specific milestones set by the lender.
Other Mortgage Types
Remortgage
Remortgaging, also known as refinancing, means replacing your current mortgage with an entirely new one. When market conditions are favourable, customers can renegotiate the terms of their mortgage through their current lender. Alternatively, they can switch banks to get a better deal.
The key part is that the new bank will settle your existing mortgage debt with the previous bank. Only then, you will swap your current loan terms to ones that better suit your current financial situation.
People holding long-term mortgages can look for more competitive options to refinance their loans. Unlike some countries, exiting a mortgage in the UAE during the fixed rate period incurs no extraordinary penalties.
Sharia Compliant Options
In Dubai, Sharia-compliant mortgages offer homeownership without traditional interest. These mortgages use structures like leasing or profit-sharing instead. A common choice is Ijara, where the bank leases the property to you and transfers ownership upon full payment.
Offset Mortgage
When a mortgagee connects two bank accounts for mortgage repayments, it is known as an off-set mortgage. The borrowers connect their savings account with the loan repayment account. With this, they can make temporary loan overpayments with their savings.
Additionally, the account linked has all the funds accessible to you. That said, choosing conventional overpayments will pay the mortgage to the lender.
FAQs
By far the easiest method is to use the Mortgage Finder’s monthly mortgage calculator.
– Go to Mortgage Calculator
– Input your property purchase price, loan duration, interest rate and residency status.
– Get an estimate of your monthly payments.
Securing a mortgage in Dubai can be tricky. Stricter loan limits are common, employment requirements can be specific, and self-employment adds complexity.
However, partnering with a trusted mortgage broker like Mortgage Finder can significantly ease this process.
Mortgages for first-time property buyers come with the easiest eligibility criteria. The restrictions can be relaxed further if you are a UAE national or a resident employed in the country.
You can also better negotiate your mortgage if you allow a salary transfer directly from the employer to the bank. This wraps all the details about the types of mortgages in Dubai. If you want to avoid a mortgage, you can learn about buying an off-plan property in Dubai.
You can find several comprehensive and personalised information regarding your requirements on Mortgage Finder. Choose the most suitable mortgage products according to your preferences.
To learn more about mortgage and property buying processes, keep reading the Property Finder blog.
