Buying a property in Dubai is the biggest milestone that often comes with a lot of challenges. One such big challenge is choosing the best mortgage options. As there are different types of mortgages available in the market, your proper understanding of them can make your buying process easy by helping you with choosing the right financing options based on your financial goal.
Here are the various types of mortgage products you will find in the market.
Fixed-rate mortgage
As the name suggests, a fixed-rate mortgage is a type of mortgage in Dubai in which your interest rate remains constant for an agreed period of time, which is usually less than five years.
This type of mortgage is best for the first-time buyers and salaried individuals. This helps the buyers predict their monthly payments and plan the financial outlay for many years. One of the advantages of fixed rate is, in case of ups and downs in the market interest rates, there will be no effect on the original rate the buyer is paying. When the fixed terms ends, the loan usually switches to a variable rate.
As a first time buyer, you must study the market trends before making any decision.
Variable mortgage rates
In this type of mortgage interest rate is not fixed. It changes based on the market benchmarks. Interest rates depend upon the market conditions. The borrowers can get the benefits if the market rates go down and they are required to pay higher interest with rates going up.
This is best for the buyers who are comfortable with the market changes or and can predict the trends in advance.
One of the advantages of the variable rates is it may offer lower initial rates. Before choosing this option one should explore the market trend over a period of time.
Capped-Rate Mortgage
A capped-rate mortgage is a hybrid home loan that has the features of both the fixed-rate and the variable rate mortgages. Like a variable mortgage the interest rate moves up or down based on market conditions. However, there is a maximum limit beyond which the rate cannot rise. This maximum cap is set for a fixed period of time.
This is best for the buyers who want flexibility but with the limited risk as it provides protection against the extreme increase in interest rates.
Offset Mortgage
Offset mortgage is a type of mortgage in which you link your mortgage account with your savings account. If you have savings in your account you can pay interest only on the difference between your debt and savings. This way you can reduce your monthly payments or shorten the mortgage terms.
In this type of structure you keep your savings in a linked account with your lender. Instead of earning taxable interest on these savings, you use that cash to reduce the balance on which mortgage interest is calculated. You can also estimate how this affects your monthly repayments by using a mortgage calculator in Dubai, which helps you understand how reducing the loan balance can lower your overall interest costs.
For example, if you have a AED 100,000 mortgage and AED 20,000 in savings, you only pay interest on AED 80,000.
There are no restrictions on your use of savings as your savings remain accessible, you can withdraw them anytime.
Offset mortgage works well for the people who consider keeping savings in their account and are comfortable with not taking interest on their savings.
Remortgage mortgage
In a remortgage mortgage you replace your current mortgage with a new one, usually with a different lender while staying in the same property. In this type of loan switching you take a loan from the new lender and use that loan to pay off the old loan completely. This process involves administrative steps to transfer the loan.
The main goal of this mortgage is to avoid moving to a lender's higher Standard Variable Rates when the fixed deal ends.
Shariah-Compliant Mortgage (Islamic Home Finance)
In islam the internet on money is prohibited, instead of charging interest Islamic banks structure property financing through asset-based transactions. UAE Central Bank and the bank's internal Shariah board regulate Islamic home finance products in the UAE.
So instead of lending you money and charging interest, the bank buys or owns the property first and then sells or leases it to you under an agreed structure. The transaction must be linked to real assets and the risk is shared among the parties.
Buy-to-Let Mortgage
In Buy-to-let Mortgage a buyer purchases the property to rent out. This is specifically designed for the investors who buy the property to generate the income out of that property.
In this type of mortgage an investor is usually required to pay the higher down payment. The rental income may be considered for eligibility.
The interest rate may be a little higher as compared to residential mortgages.
Off-Plan Mortgage
Off-plan mortgage is used for mortgaging a property directly from the developers before the completion.
There are a few banks in Dubai offering this type of mortgage and terms may vary from bank to bank.
Conclusion
Before choosing any type of mortgage products, consider a few things like your income stability, long term plans, risk tolerance, and purpose. If you are a first time buyer then fixed-rate mortgage will be the safest option for you. To make your journey easy and less confusing you can take the help of an expert. Experienced staff at Neon Mortgage assist you at every step, making the process easy and smooth for you.
