Investing in property is something that we all intend to do at some point in our lives. To dream of having your own home is easy but to make it come true is something that requires a considerable amount of strategic and financial planning.
A mortgage is one option you can consider while buying a house. You can get a mortgage arranged with your bank and negotiate for terms that are most favourable to you. In time, as the value of your property appreciates, you will realise that the effort was worth the investment.
Let’s learn about how to get a mortgage in the UAE starting with the basic definition.
Mortgage – A type of financial assistance provided by banks and financial institutions to enable the borrower to purchase a house. The bank usually has a claim on the house in case the borrower defaults in making repayments.
Getting a mortgage will help you invest in your house, the value of which will appreciate over the years. Especially in Dubai where the real estate market is currently booming with property prices on the rise, your investment today can be worth much more in the future.
You need to fulfil the eligibility criteria to acquire a mortgage loan in the UAE. Also, banks offer different options for monthly instalments and may charge various fees prior to sanctioning the loan. You would need to understand all this to estimate your future outflows and ascertain affordability.
Alternatively, you can also use our Repayment Calculator to find out about your monthly installments.
You need to learn about a few things before making a mortgage application starting with the basic mortgage terms.
Glossary of Mortgage terms
1. Principal
This is the original loan amount of your mortgage application made to the bank.
2. Downpayment
You would need to make an upfront payment to the bank which is typically 20% of most home loans in the UAE. Make sure you have this amount ready before applying for a home loan.
3. Interest rates
You can opt for fixed or floating interest rates or a combination of both on your mortgage loan. If the rate is floating, it can decrease or increase and you stand to benefit or lose money accordingly. Fixed rates remain fixed throughout the mortgage term. Floating rates are beneficial when they are lower than the fixed rates and you end up paying less in the form of interest.
4. EMI
EMI refers to Equated Monthly Instalments. This is a fixed amount you need to pay the bank every month. Make suitable arrangements to pay off your monthly instalments calculated based on the loan amount. Find out if the EMI rate is fixed throughout the life of the loan or if it changes at prescribed intervals.
5. Processing fee
You will be charged a processing fee of 0.5-1% of the loan amount for processing your loan application. It is usually non-refundable and is charged even if you decide to not take the loan.
6. Early Settlement fee
A fee of 1% on the loan amount up to a maximum of AED 10,000 is charged by the bank in case you decide to settle the loan amount at an earlier date.
7. Foreclosure
As explained earlier, the bank has a claim on your property in case you default on making payments. The agreement you enter with your lender is legal and binding, giving your bank the right to resort to foreclosure. This means that the bank can initiate proceeding to foreclose on your property to recover the unpaid loan amount in case you default. This can affect your credit record and makes it difficult to purchase another property later.
– Above all this, it is important to select a property that fits within your budget.
– Your investment will be more profitable if you opt for the ownership mortgage instead of the buy-to-let mortgage as the latter requires a higher payment of interest.
– Also inquire about property insurance and taxes with your bank representative.
Click here to compare mortgage loans in the UAE
Rules for home loans in Dubai:
New rules introduced by the UAE Central Bank came into effect in the year 2013
| Particulars | UAE National | Non UAE National |
|---|---|---|
| Loan to Value ratio for first Property valued at less than AED 5 Million | 80% | 75% |
| Loan to Value ratio for first Property valued at more than AED 5 Million | 70% | 65% |
| Mortgage restriction for all off plan properties | 50% | 50% |
| Total repayments restricted to | Annual income earned in 8 years | Annual income earned in 7 years |
| Maximum age at the time of the last instalment of the loan | 70 years | 65 years |
– Maximum loan tenure for repayment will be 25 years
– EMI cannot exceed 50% of the borrower’s monthly income
– Processing fees are capped at 1% of the loan amount, with a minimum of AED 500 ($136) and a maximum of AED 2500 ($680).
