Dubai’s real estate market attracts diverse buyers, but cash constraints may prevent upfront payment. Here’s when the mortgage comes to help you buy property in Dubai. Whether you are a UAE national or non-resident, banks in this emirate offer viable options to everyone.
So, let’s discuss the various types of mortgages in Dubai and learn which mortgage conditions suit you more!
Mortgages Types in Dubai
Dubai banks offer various mortgage products tailored to their prospects’ needs. Here are some common types of mortgages in Dubai, so let’s scroll down!
1. Interest Rate Type
The agreed-upon interest rate categorises Dubai’s most common mortgage loan type. According to UAE mortgage law, the interest rate can be fixed or variable based on the nature of the contract.
2. Fixed Rate Mortgage
Fixed Rate mortgages are popular among property buyers in Dubai due to their fixed interest rate. The repayment period in this mortgage type is limited, allowing predictable monthly payments.
These mortgages are unaffected by market conditions and can be negotiated through salary transfers for more favourable rates. However, once the fixed period ends, the interest rate increases to a higher “reversion rate”.
3. Short-Term Mortgage
All fixed-rate mortgages have a defined time limit. Dubai’s mortgages for non-commercial real estate properties can last up to 25 years. However, their fixed rate period is limited to 1-5 years.
Short-term loans, with a fixed rate of 3.89% for up to three years, offer more favourable interest rates.
4. Long-Term Mortgage
Dubai’s market considers five-year fixed periods as long-term fixed periods. With an interest rate of 3.99%, the rate at long-term mortgages is currently slightly higher than short-term rates.
5. Variable Rate
Variable-rate mortgages in Dubai fluctuate based on the EIBOR period, increasing the interest portion of monthly payments. Banks offer variable prices for a one to six-month EIBOR period.
In addition to EIBOR, banks charge a fixed margin on top of the EIBOR, which forms the total interest. This differs from fixed-rate mortgages, where interest rates remain constant.
Mortgages by Residency Status
Mortgage options worldwide are linked to residential status. In Dubai, national residents enjoy the most benefits, including easier eligibility conditions and a favourable LTV ratio. However, the interest rates remain consistent regardless of residency status.
1. UAE National
UAE nationals can enjoy a 15% down payment on first-time residential properties. Along with that, they get exclusive government-subsidized mortgage options for first-time home buyers.
2. UAE Resident
UAE expatriates have a maximum LTV ratio of 80%, requiring a 20% down payment. Compared to non-residents, they enjoy better working conditions and can pay their mortgages through their employers.
3. Non-Resident
Non-residents can acquire property with LTV ratios starting at 60%, with most options having high LTVs. However, they can only finance homes in designated areas, and their possibilities for property acquisition are limited.
Mortgage By Property Purpose
Dubai’s specific regulations for different property types lead to varying mortgage requirements for residential and commercial properties.
1. Residential
A residential mortgage is a type of home loan used to finance the purchase of a primary residence. It offers more favourable terms than secondary property mortgages, making it ideal for individuals seeking to buy their first home.
2. Commercial
Commercial mortgages in Dubai offer financing for income-producing properties like offices, industrial buildings, hotels, and mixed-use developments. With a maximum duration of 15 years, the commercial mortgage duration is shorter than residential mortgages of 25 years.
3. Investment
This type of mortgage is beneficial for individuals seeking real estate investment. Or financing various residential properties for rental income or resale, including single-family homes and multi-unit buildings.
4. Land and Construction
A land and construction mortgage is a single loan that covers both land purchase and construction costs. The mortgage is also disbursed in phases, unlike traditional mortgages. The lender releases funds upfront, and additional funds are released upon specific milestones.
Other Mortgage Types
Some other types of mortgages in Dubai are:
1. Remortgage
Remortgaging, or refinancing, involves replacing your current mortgage with a new one. You can do it through your current lender or switching banks. The new bank will settle your existing debt with the previous bank.
Then, you can swap your loan terms to better suit your financial situation. Long-term mortgage holders can find more competitive options and exit a mortgage in the UAE during the fixed-rate period. Remortgaging incurs no extraordinary penalties, making it feasible for many.
2. Sharia Compliant Options
Dubai’s Sharia-compliant mortgages, such as Ijara, offer home ownership without traditional interest through leasing or profit-sharing structures. The bank leases the property and transfers ownership upon full payment.
3. Offset Mortgage
An off-set mortgage involves a mortgagee connecting two bank accounts for mortgage repayments. This allows borrowers to make temporary loan overpayments with their savings.
Off-set mortgage also allows all funds to be accessible, but conventional over payments will pay the mortgage to the lender.
FAQs
1. What Mortgage Can I Get in Dubai?
UAE’s Central Bank states that the maximum mortgage amount in Dubai is 7 times your annual income or 84 months. However, the total liability repayments cannot exceed 50% of your salary.
2. Does Dubai Have an Interest Free Mortgage?
Yes, you can have an interest-free loan by opting for a Shariah Compliant Mortgage.
3. What Is the Mortgage Term in Dubai?
UAE mortgages are offered on a fixed-rate or variable-rate basis. Fixed terms typically last five years or less, and after the fixed term, the deal transitions to the bank’s variable rate.
4. Is it legal to obtain a second Mortgage on one property in Dubai?
Yes, it is legal to obtain a second mortgage on one property in Dubai, but you need approval from your first lender and must follow UAE Central Bank rules. A second mortgage lets you borrow more money using your property’s value, but not all banks offer it.
With the various types of mortgages in Dubai, you can apply for a loan according to your needs. You can also negotiate if you allow a salary transfer directly from the employer to the bank. So, you must make an informed decision after thoroughly reading all the terms and conditions.
For a more detailed guide on real estate in Dubai, check out the Property Finder Blog!
