Some of the most common search terms that potential homeowners in Dubai search for are: properties for sale in Dubai, properties for sale in UAE, villa for sale in Dubai, Home loans in Dubai, buying apartments or villas in Dubai, home loan for NRI in Dubai, etc.

This is because there is a large population who wants to buy properties in UAE including Indians and other nationals.

Expats want to buy property that fits and suits their taste when looking to become homeowners in Dubai. Our team at Toplatest has compiled information that is necessary for potential homeowners including types of mortgages and home loans in Dubai, the criteria for home loans, etc, in this blog post.

So let’s get into the important details and make you well informed for decision making when it comes to getting a home loan or mortgage in Dubai.

Types of Mortgages and Home Loans in Dubai based on your financial and property needs 

There are various kinds of mortgages that are offered by financial lenders in the UAE and Dubai. Out of these, 6 are the most important. 

Let’s take a detailed look at these 6 kinds of mortgages available to potential home owners:

• Fixed Rate Mortgage

As the name implies, a fixed rate mortgage is one where, for a set period of time, the rate of interest remains the same. The principal is pre-decided before the term of the loan begins and it remains the same for a certain time period. 

The rate of interest is determined by your mortgage provider and the guidelines set by the Central Bank of the UAE.

Pros:

• The main benefit of this kind of mortgage is that it makes it possible for the homeowner to enjoy a fixed rate of interest from the beginning of the mortgage to the end of term which is 25 years in most cases. It makes it easy for repayment of loan amounts. There is no worry about fluctuations of rates, which means that you can set aside a clear budget for your mortgage repayments from the very beginning.

Cons:

• As soon as the fixed rate period expires, the reversion rate or follow-on rate is applied. This means that now a higher rate of interest will be applicable on the homeowner which is often higher than the initial rate of interest as well as the current EIBOR rate.

• Floating or Variable Interest Rates Mortgage

In this kind of mortgage the rate of interest does not remain constant. It can change at any time during the term of the loan. The fluctuations are dependent upon the market rates in the Dubai property market.

Typically a 25 year term is fixed for variable interest rate mortgages.

Pros:

• The Variable Interest Rate Mortgage can be a good choice if you expect the rate of interests to fall in the near future. This is because you will be paying less interest than the current EIBOR rate and the base rate of your bank will reduce.

Cons:

• It is typically a challenge to manage and plan a budget for your mortgage as market fluctuations are often unpredictable.

• Remortgage

Remortgage, in simple words, means to replace the existing loan for a new loan for more or the same amount of funds.

It is also referred to as refinancing since it is a way  of paying off or replacing your current home loan with a new one. It is done in cases where there is a need to free up capital.

Pros:

• If you remortgage your loan for terms of repayment that are better than before, you can pay off your loan faster
• You are able to enjoy EIBOR rates that are much lower. This is helpful in case your first loan was a mortgage at a fixed rate
• You can get a loan with a lower rate of interest than before
• It helps you increase your overall income by consolidating your debts

Cons:

• Remortgages take time. 
• Large amounts of paperwork and documentation are required
• Cash-out mortgages often increase the amount of overall mortgage
• If you end up remortgaging when your present mortgage term is coming to an end, you are liable to pay a closing fee

• Offset Mortgage

This kind of mortgage allows overpayments to be made by the borrower from a bank account that is linked. It is a flexible kind of mortgage. Your mortgages and your savings account are linked so that your savings can be used to pay off your debts.

Pros:

• Larger principal repayment means shorter loan time period
• Lowers total rate of interest helping you save money
• It affects your savings which helps act as an incentive to save more money and pay off the loan quicker
• Offers equity that is much higher than what banks offer, it helps you enjoy increased reductions on expenses on the loan than the amount you lose on the interest income when you deposit money in the bank

Cons:

• Interest is variable so it is bound to increase over a period of time
• Higher rate of interest than traditional mortgages (with the right mindset and planning it helps you save significant amounts of money)
• You need to pay an annual fee to keep the mortgage active

• Investment Mortgage

As the name suggests, you can buy an investment property or a property for the purpose of investment with this kind of mortgage. 

The property bought in this way is often used to buy a home to update or improve and then earn a profit by reselling or renting the property out to tenants in order to generate additional income.

Pros:

• It earns you profits. The profits from this property can pay off the loan amount. It helps maximize mortgage returns as you are able to leverage equity immediately over the property.

Cons:

• Since there is a higher default risk than in the case of mortgage for a residence for the purpose of living there, there are a very few lenders that invest in these mortgages
• In comparison to residential or commercial mortgages, investment mortgages come with stricter guidelines.

• Non-Resident Mortgage

This kind of mortgage is offered to individuals who are not the residents of a country or city. This means residents that are non-tax payers in the city or country where they want to purchase the property. 

The mortgage for non-residents is offered to individuals who follow under the following categories:

• Salaried or self-employed earners with an income after tax deductions of 20,000 AED at least (per month)
• Citizens that belong to a country on the financial institution approved list
• Ages between 17 and 70 years (may vary)

Pros:

• It helps open up capital for foreign investors

Cons:

• Only up-to 50% or half of the value of the property is financed by Dubai based financial institutions, for foreign investors
• Very few banks offer this kind of mortgage
• There are high monthly payment rates and shorter loan pay off tenure 

Important Things To Know for Expats Looking For a Home Loan in Dubai

Home loan eligibility criteria:

• At least 6 months to 1 year spent in the UAE
• A minimum employment term of 6 months in the UAE
• If you are self employed than at least 2 to 3 years of business period in the UAE

Expats have to make certain payments in order to get a home loan in Dubai. These rules are enforced by the UAE Central Bank:

• Transfer fee of 4%
• Valuation fee that ranges from 2,500 AED to 3,000 AED
• Downpayment of up-to 25% of the purchase amount
• Commission of 2% for real estate agents
• Mortgage registration of 25%

Dubai Home Loan Rates

Home loan rates range from 2.99 to 5%, in Dubai. This is the reason that accurate budgeting becomes a challenge for potential home buyers.

This is why having a proper understanding of the Dubai market is important. If you realize that the rates of interest are about to go down, you should make your move and opt for a rate of interest that can vary.

However, you should always be prepared for the worst case scenario. In case your calculations and predictions go wrong and the rates of interest end up increasing, you should have the money ready to pay for it.

There is no doubt that it is a critical choice to make for any individual.

In recent years it has become much more difficult to switch to a mortgage provider. There is a penalty of 10,000 AED, which was earlier capped at 5% of the amount. But if you are able to negotiate this amount with the bank, you can enjoy better terms that are much more attractive, as per the situation of the market.