Interest only Mortgages in UAE 2024 – Compare4Benefit

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interest only mortgages UAE

Here is everything you need to know regarding interest only mortgages in UAE – A Complete Guide

Even though the epidemic surge inflates over time, certain relaxations have been initiated in the UAE. The enormous projects that took a toll with the initiation of the pandemic have begun working on the same. So as per reports, the nation will experience inflation in the property market in 2022. The property developers work very hard to bring up the best properties at easy and affordable rates, where mortgage rates are extensively low.

Introducing Interest Only Mortgages 

Interest-only mortgages hold an important place in the mortgage market, just like its name. This mortgage has been assorted and well structured with a common premise. The borrowers who avail of interest-only mortgages are not required to pay the principal amount for a certain period.

The usual period is between three to ten years, where their monthly payment costs are lowered, even much lesser than that of principal-and-interest mortgages.

However, you must also remember that since the Great Depression, interest-only mortgages were a part of the worst housing market debacle. People were allowed to buy properties they could never have afforded any day through this mortgage. Nevertheless, this market broke down in 2008, and all of it ended.

What Are Interest Only Mortgages In UAE?

Compared to the other types of mortgages in the UAE, this mortgage is horrifically dangerous. This way, people could buy expensive properties for themselves, which they could never have afforded with the commercial financing. When the interest-free periods of these mortgages ended, the homeowners’ monthly payments soared, and many could not even afford a penny, and they defaulted on their loans.

The interest-only home loans where the borrowers could not afford to pay back have been terminated for a good cause. However, some interest-only mortgages are still available in the UAE in a very limited amount.

Interest Only Mortgage In The Dubai – How Does It Work?

In the present scenario, interest-only mortgages are found in extremely limited quantities. The lender granted this kind of mortgage for a particular period, i.e., not more than one year. And at the end of the course of one year, the mortgage flips back to the normal repayment method.

In other words, if you have applied for an interest-only mortgage, you will get a relaxation of a year where you are just required to pay the amount of interest, leaving aside the principal amount. So after one year, your monthly repayments will revert where you are required to pay the interest amount along with the principal amount every month. During this period, your lender will adjust the principal value provided with relaxation for the first year of loan repayment. That means your repayment amount is automatically increased after the interest-only period.

Factors to choose an Interest Only Mortgage

There might come some point in your life when you are trying very hard to purchase a property for yourself, and you are not very flexible and unstable about your finances. Even though you apply for a mortgage, you might feel that it will become extremely difficult to pay back the loan repayment amounts in the present situation. It is the time when interest-only mortgage sets in.

When you buy a property in the UAE, you might feel that you don’t have enough funds to pay back the monthly repayment amount. To make compensation, you are required to choose the interest-rate mortgage.

Even though interest-rate mortgages are given for not more than one year in the UAE, you can avail of this to reduce your monthly mortgage payments for a particular period and save up for the later years.

So basically, this kind of mortgage works in your favor when you have financial difficulties with cash flow, and you are in dire need to obtain certain flexibility. Suppose you buy a property, and you are required to purchase the property’s furnishings simultaneously; you might be having some financial crunches and difficulties. So to manage this situation and bestow flexibility to your finances, you can apply for an interest-only mortgage.

However, mortgage advisors recommend the interest-only mortgage to landlords who have recently purchased a property and are looking for tenants. So by the time they receive tenants, they can have enough funds to pay off the loan during the loan repayment period, along with the principal value and interest.

Real Estate Market In The United Arab Emirates

Have you been living in the UAE as a tenant? Well then, now is the time for you to reconsider this factor. There are plenty of new and rising properties in the UAE. Experts of real estate in the Emirati have also stated that purchasing a property is massively expanding. And they can also foresee that people from all around the globe will also come to purchase properties in the UAE.

However, it is time for you to upgrade yourself from a simple tenant to a proud homeowner. Gather your funds and set out to purchase the rightful property in the bustling nation. You can also avail yourself of various mortgages in the United Arab Emirates at extremely affordable interest rates. Nevertheless, availing the right mortgage will make your work a lot easier as your funds will obtain greater flexibility. 

If you have no idea regarding the types of mortgages available in the UAE, there is nothing to worry about as we have got you covered. In this article, we will discuss interest-only mortgages and various other prevailing mortgages in the UAE.

Mortgage Market In The United Arab Emirates

Before 30 to 40, the UAE was nothing but a small landform in the Persian Gulf, which was not bustling even by an inch. With every passing day, enormous properties of projects are rising, and thereby the population is ever increasing. In recent times, the United Arab Emirates has become a popular getaway destination and a home for expats, particularly where the business is rich and glorifying. Therefore we can rightly consider Abu Dhabi and Dubai the bustling places for the rich and ever-growing population.

So greater population means greater number of properties; greater properties means large scale buyers, and lastly, large scale buyers mean enormous mortgage demand. So with this trend, the mortgage market has also flourished extensively in the UAE. All the local and international financing sectors provide loans to UAE nationals and expats based on variable eligibility criteria.

Who can avail for a mortgage in UAE?

Both citizens and expats can avail of a mortgage in the UAE only after adhering to a specific set of criteria made available by the financial sectors or lenders who will grant you the mortgages as per your requirement. Before purchasing a property for yourself and availing a mortgage, you need to fulfill some of the criteria like – you must be employed and have a strong source of income so that you can have the potential to pay back whatever sum you have borrowed to purchase your dream property.

So, if you are applying for a mortgage, you must be employed for a minimum of one year or six months as per your lender’s criteria. And if you are self-employed, you must have your business running for two consecutive years. However, you will find certain banks that will grant mortgages to those employed at particular companies. To avail flexibility regarding your cash flow, it would be better to choose that particular financial institution for your mortgage, with whom you hold a polished relationship so that the officials can be very well familiar with your financial situations.

It is always essential for you to have a clean credit history; otherwise, it might have a long-term effect on you while applying for a mortgage, and you might even have the possibility of being turned down. So check on your credit score before applying for a mortgage.

You must meet certain pre-existing eligibility criteria before applying for a mortgage, regardless of what kind of property you are looking for in the UAE. Some of the eligibility criteria are:

  • You must be more than 21 years and less than 65 years of age.
  • Even though an expat, you must be a resident of the UAE.
  • It would be best to be employed and have a stronghold of monthly income. For self-employed people, the monthly income shall not be less than AED 25,000. On the other hand, the monthly income for salaried people must not be less than AED 10,000.

Apart from these three significant criteria, certain local and international banks have additional eligibility criteria. So before applying for a mortgage from whichever bank it may be, you must have a thorough reading and understanding of all the guidelines they have to offer.

Eligibility Criteria For International People

If you are an expat, you can easily apply for a mortgage in the UAE. You need to have a minimum salary of AED 10,000. It is also essential for you to make a down payment of 25% if you purchase a property that is less than AED 5 million and 35% if the valuation of the property is more than AED 5 million.

Documents required for applying for a Mortgage in UAE

Every official work requires complete paperwork to hold the proof of everything that has been signed for. So if you are planning to purchase a property by availing a mortgage in the UAE, you need to have certain documents handy. However, it might differ from bank to bank as to who requires what document. So the basic documents that you need to keep handy before applying for a mortgage are:

  • A photocopy of your Visa and Passport.
  • A photocopy of your Emirates ID.
  • A photocopy of your salary certificate that will cater as proof of employment.
  • A photocopy of residential proof – either tenancy contract or DEWA bill.
  • Photocopies of the bank statements and payslips for the past six months.
  • A photocopy of the latest credit card statements.

Costs of Mortgage in UAE

When you have settled your mind for purchasing a property through mortgage financing, you need to pay various fees like – legal costs, administrative fees, and many more. However, it may vary from situation to situation, but you need to be prepared to pay - 

  • The bank’s fees include processing fees, registration fees, property valuation fees, etc.
  • The registration fees for a mortgage – 25% of the overall mortgage valuation.
  • Loan protection insurance or mortgage life insurance.

Types of mortgages available in UAE

UAE provides its citizens and expats with various mortgages for purchasing a property. But to avail of a mortgage, everyone needs to have a letter of pre-approval. It is the essential document through which you will be granted a mortgage of your choice before purchasing a property in the Emirati country. Some of the basic mortgages under fixed-rate and variable-rate mortgages that are widely popular in the United Arab Emirates are:

  • Variable Interest Rates Mortgage
  • Fixed-Rate Mortgage
  • Capped Mortgage
  • Discounted Rate Mortgage
  • Remortgage
  • Offset Mortgage

Rates of Mortgage in UAE

The mortgage rates can vary differently over time, thoroughly depending on the nation’s oil prices and the economic situation. For the last few years, UAE has been experiencing slow growth in the mortgage market as buyers are purchasing properties directly from developers with payment plans in place of mortgages, as evident from the rates of 2019 – the fixed rate for one year starting at 2.75%, for three years it was 3.89% and for five years it was 3.9%.

To Conclude

Interest-only mortgages were once potentially prevalent in the earlier 2010s. However, with great loss incurs, this mortgage plan was entirely scrapped. Currently, in the UAE, an interest-only mortgage is prevalent for a limited time, i.e., for one year.

Frequently Asked Questions on Interest only Mortgages

  • As an expat can I purchase a property in the UAE?

Yes, you can. However, you must meet some eligibility criteria as per the authoritative bodies.

  • Can I negotiate the terms of the interest-only mortgage in UAE?

No, you cannot negotiate on the term of an interest-only mortgage. If you avail of this loan, you will get an interest-only period for just a year.

  • Is interest-only mortgage beneficial?

Yes, if you have financial imbalances right after purchasing a property, this one-year relaxation of omitting principal value will provide you with great benefits.

  • What is the maximum period for home loans in the UAE?

The maximum period for home loans is 25 years for the citizens of UAE and 15 years for foreign residents.