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Dubai property prices can be a challenging issue for most buyers. Purchasing an ideal home is one of the most exhilarating things everyone can do in his life. As you know, buying a dream property in Dubai consists of many steps, including looking through online listings, talking to agents, consulting with friends and family, viewing the site in person, and then making the right decision. After you’ve selected the desired house, it’s time to examine the mortgage types in Dubai available to buyers. In the next step, you must look into the different mortgage types in Dubai, including their repayment choices and related terms that you should know.
Mortgage types in Dubai
The buyers can select from different types of mortgages available in Dubai. Assuming that it is a long-term responsibility, you must be familiar with the advantages and disadvantages of each type before choosing the one that best meets your needs. By considering Dubai house prices, you can make a better decision. Mortgage loan in Dubai has some advantages including:
- Buying a house without cash
- Keeping cash reserves
- Flexibility and choice
- Government support
- Cost-effective
- Easy to repay
If you want to purchase a home in Dubai, there are several different mortgage types available in this city.
1.Fixed-rate mortgage
You can understand from the name that the interest rate is determined before the loan term begins in a fixed-rate mortgage. Also, this rate is not changeable during the pre-agreed period, which usually is less than five years. Still, you might be fortunate enough to come across a lender presenting a full loan repayment period at a fixed rate.
The borrower can take advantage of mortgage in Dubai. First, you can easily schedule your financial outlay for many years, at least. If the market situation alters and interest rates become less, you will be burdened with the original rate. Still, if the rates rise, you can benefit from your fixed-lower rate. As a borrower, you must examine carefully the market or take expert help to become familiar with mortgage types in Dubai. If rates are likely to decrease soon, choosing a fixed-rate mortgage isn’t the best choice.
2. Variable rate mortgage
The interest rate can alter during the reimbursement period for variable or adaptable interest rate mortgages according to market conditions. Borrowers can finally enjoy a profitable deal or pay a higher rate of return according to the situation. If you choose this type of loan, ensure you have enough money to manage any rise in repayments.
3. Discounted rate mortgage
Taking into consideration Dubai house prices, receiving a discounted rate mortgage can be the most suitable choice among the different mortgage types available in Dubai. Interest rates are lower compared to the Emirates Interbank Offered Rate. And the offer is arranged for first-time purchasers usually. For example, if the lender’s interest rate is 4%, you will get a discount of 1%. Your interest rate, therefore, is 3%. Still, if the lender’s base rate increases to 5%, your interest rate will rise too. But if you are fortunate and the base interest rate decreases, you are likely to receive an advantage.
A discounted rate is usually set for a two-to-five-year period. After this time, your payment will be dependent on the lender’s base variable rate. Still, “lifetime” discount mortgages are also at hand sometimes. If your loan is paid back before the loan term, you may need to pay an early repayment charge. This can be the most suitable type of mortgage for first-time buyers in Dubai.
4. Capped mortgage
A capped mortgage is another type of mortgage in Dubai that has some advantages for the borrower. You will pay back at a variable rate, but a maximum cap is determined before the loan term starts. Often, the time limitation applies to the capped period. The interest rates can increase depending on the market conditions, but a limit is set beyond which the rate will not rise. This enables you to make some financial arrangements, at least initially. Still, you are required to pay more with capped mortgage rates compared to discounted mortgage rates.
5. Remortgage
You can receive a new loan on a current mortgage or even convey the current mortgage with a remortgage. Surprisingly, the same lender can provide this new loan, or you can look for a new one. Even when the interest rate is not high on the first loan, people choose a remortgage since they need extra money for other uses. Most people choose remortgages to receive a lower interest rate or a longer payment term. A closing cost must be paid when opting for a remortgage.
6. Offset mortgage
An offset mortgage includes connecting a conventional mortgage with one or more deposit accounts. Offset mortgage enables borrowers to connect their savings/current/credit card to the loan account. If they have more money in their account, they have to pay less interest rate. The money is accessible from the linked account. Still, if you choose traditional overpayments, the transfer of your money will be directly done to your lender.
The offset mortgage interest rate is a bit higher compared to traditional mortgage plans. In addition, at the end of the year, you are required to pay an annual charge. Therefore, there are some financial facets that you may have to take into account when selecting mortgage types in Dubai. Dubai property prices can convince you to use this mortgage.
7. Investment mortgage
A loan obtained to purchase a property for investment is referred to as an investment mortgage. The purpose here is to produce a new income source by either leasing the property and getting work done or selling it to someone else. Buildings with five or more units are regarded as commercial real estate, and different rules apply to such properties. Taking into consideration the Dubai villa prices, there are some sought-after areas for investment in the city. You can purchase apartments or villas in a community that meets your needs best.
8. Non-resident mortgage
As it is understandable from the name, this type of mortgage is at hand for non-residents of Dubai. Such mortgages are verified for buyers who meet the following criteria.
- Only citizens of a country that is part of the accepted list of financial institution are eligible
- Salaried or self-employed
- Have the least monthly income (after tax subtractions) as set by the bank
In general, banks only lend money up to 50% of property in such cases. In addition, the loan term is not long, and monthly payments are usually higher.
Mortgage by property type
The different types of mortgages available in Dubai can also be classified based on the property type. Such mortgages are explained below.
1.Residential mortgage
Residential mortgages are loans devoted to people to buy a property as their main residence. Leasing or utilizing this place for business is not allowed. For a residential mortgage, you can select between a variable and fixed interest rate. You will take full ownership of the property after the mortgage is completely paid. The repayment is planned over a specific time. The repayment period of a typical residential mortgage is usually 25 years. It is also possible to remortgage a residential mortgage. If you find Dubai apartment prices slightly expensive, you can use this type of mortgage.
2. Commercial mortgage
The business owners take commercial mortgages, one of the types of mortgages available in Dubai, to buy real estate as a corporate asset. This property cannot be sued as your main residence. You can get full ownership of a property after the mortgage is completely paid. An interest rate on a commercial mortgage is lower compared to a business loan. At first, you must pay higher payments to the lender. Hence, you must know whether you can take out funds from the business without leaving a bad effect.
3. Land and construction mortgage
It is one of the types of mortgages available in Dubai utilized to renovate a current structure, begin a new construction project or purchase land for construction goals. In a construction mortgage, the total amount is divided into portions which the borrower gets to finish each project stage. Still, paying off the construction mortgage takes a long time.
