• A guide to mortgages in UAE

    Mortgage is a legal agreement where a bank or financial institution lends money at interest in exchange for the taking the title of the debtor’s property. Mortgage is the largest debt one can take. Any legal property owned can be mortgaged but the most common are land and buildings. The mortgages repayment lasts for 15-30 years monthly payments. Your home or land or building is the collateral for the loan. If you don’t repay the loan, the lender can take back the property and sell it to cover for the debt. This will damage your credit rating and affect your ability to buy a new home in the future.

    What is home mortgage?

    Home mortgage is where the property owner transfers the title of the home to the lender on the condition that the title will be transferred back once the payment has been made. It is the most common form of debt as it comes with a lower rate of interest than any other type of debt.

    The principal amount is the sum of the money you borrow. You use the loan to purchase a home. The loans are long term and are secured as the home is the collateral. To lower your upfront amount you can put down a percentage of home’s purchase price as down payment. The lenders typically require you to pay a down-payment of 20% of the house purchase price.

    The lender will also charge an interest on the loan amount. The monthly repayment comprises of the principal and interest is called as amortization which gets reduced over the fixed period of time.

    In addition to the amount paid to repay the loan, it includes taxes as well. Lenders require you to have an insurance as well. If you don’t have a home insurance, you will be expected to have a life insurance that covers your home and your personal property against theft, fire, bad weather, etc.

    Types of Mortgages

    There are different types of mortgages available, the most common are as follows:

    • Capped mortgages:

      Capped mortgages is the combination of variable and fixed mortgage. There is a maximum limit that the interest rate can rise to. The interest on the loan will rise and fall. The capped mortgages have a high ceiling in terms of how high the interest rates can go.

    • Current account mortgages:

      You can merge your mortgage with your current account and create a single balance.

    • Discounted mortgages:

      This type of mortgages are offered at a slightly reduced percentage cost to the Standard Variable Rate. You can get a discounted mortgage at 0.5% off the Standard Variable Rate for a period of 5 years and after which you will be paying the full Standard Variable Rate.

    • Fixed rate mortgages:

      The interest rates do not fluctuate and the general interest rate fluctuations will not affect your mortgage interest rate. The lenders usually don’t set the interest rate for the entire length of the mortgage, they will usually re-evaluate the interest rate after a fixed term.

    • Offset mortgages:

      This type is similar to that of current account mortgages. The mortgage relies on your savings to reduce what you own on mortgage. The bank accounts, mortgage and savings are kept separately and not combined like current account mortgages.

    • Standard Variable Rate mortgages:

      This mortgage uses non-fixed interest rate. The interest rates fluctuate based on the base rate of the bank who lent you the loan. When the interest rates go up, the monthly payments also goes up and the monthly payments decrease when the rates go down. The borrower must be aware that there will be delays in changing the rate and it is never guaranteed that the interest rate will move in perfect conjunction with that of the bank’s base rate.

    • Tracker mortgages:

      This type or mortgage is entirely tied to your bank’s base rate. Some lenders include minimum interest rate level and some lenders may offer it for a certain set period of time.

    Types of Mortgage Payments

    Mortgage payments can be made in the following two ways:

    • Repayment mortgages: The mortgages are charged per month cost on the debt owed and interest. After the last mortgage payment is made, the house is paid off completely.
    • Interest-only mortgages: Here only the interest is paid off on the loan and not the actual debt. If you have taken a mortgage of AED500,000 for 25 years, the mortgage amount after 25 years remains AED500,000 as you are only paying the interest on mortgage till then. In order to pay off the mortgage investments are set up strictly to pay for the home in full at the end of the term. People usually open pension, endowment or ISA accounts.
    • Part repayment and part interest only mortgages: The borrower can pay a percentage of the repayment and only interest mortgages to suit their needs.

    Features and benefits of home mortgage

    Following are the features and benefits of home mortgage:

    • The fixed rate mortgage charges same interest for the set period. The monthly repayment for the entire term remains the same. This is the most common type of mortgage. For the entire term you know how much money you have to keep aside each month towards the repayment. The mortgage can be prepaid at in part or in full at any time without any interest rate penalty.
    • Variable rate mortgages will have a fluctuating interest rate. The interest rates are based on the market conditions. You will benefit when the interest rates fall, but you will have to pay more when the interest rates increase. You may end up spending more on repayment than the amount you would’ve saved during the fall in the interest rates as the rates can fluctuate largely.
    • You are required to take an insurance either on your home or on yourself covering the mortgage. In the event you die, your insurance will cover for the amount due.
    • Mortgages make homeownership affordable. If you don’t have the funds with you at the moment, you can start a savings account or a pension fund and accumulate the amount and pay back the loan at the end of the term.
    • It is cost effective as the interest rates offered on mortgages are lower than any other form of borrowing as it is secured.

    How much can I borrow?

    It is important to know how much you can afford to pay each month. The monthly repayment includes your loan as well the interest on it. You can approach the lender and they will determine if you can afford the monthly payment or not. The monthly payment is decided based on your salary and monthly living expenditure. The lender also takes into consideration commissions, second job, trusts and investment income you get. The lender will calculate all the cost and take into consideration the inflation, unforeseeable costs, high interest rates and cost of taking care of your children, etc.

    The lender can decide how much you can borrow. You can have a mortgage expert look into your income and determine the loan to income ratio.

    Leading banks offering mortgages in UAE

    Following are the leading banks offering mortgages in UAE:

    • Abu Dhabi Commercial Bank:

      The mortgage is offered to UAE Nationals and Expats. The tenure offered is up to 25 years. The maximum loan amount offered is up to 80% of the property value. The lender requires you to have a life and loan insurance. Minimum salary required is AED15,000 for Salaried expat and for resident it is AED8,000. Self-employed resident has to have AED10,000 as minimum salary, the expat must have AED20,000. The processing fee charged is 1% of the loan or minimum AED5,000. The repayment penalty charged is 3% of the outstanding amount. The properties financed are Union properties, Aldar, Nakheel, Rose Tower, Sharjah Emaar, Damac and Areef. The interest rate is as follows:

      • 5.25% fixed interest for two years for self-employed individual.
      • 4.99% fixed interest for two years for salaried individual.
      • 5.49% fixed interest for five years for self-employed individual.
      • 4.99% fixed interest for five years for salaried individual.
      • Interest rate after the fixed period is 2.25% plus the retail base rate.
    • HSBC:

      HSBC offers mortgages to UAE and non-UAE residents. The mortgage tenure offered is up to 20 years for townhouse and villas. The repayments is to be made by the time the borrower turns 60. The tenure for apartments is 15 years. The maximum loan amount is based on the financial status of the individual. HSBC offers up to 75% of the developer price. The bank requires mortgage protection and building insurance. 1% is charged as an arrangement fee for the mortgage. The properties financed are JBR, Al Hamra Village in Rak, Green Community, Al Nakheel, Marina Heights Tower, Emaar Villa’s and Townhouses. The interest rates offered ranges from 3.24% per annum to 4.99% per annum.

    • Mashreq Bank:

      Mashreq Bank offers mortgage to residents and non-residents. The tenure offered is up to 25 years. The maximum loan amount offered is up to AED10 million. The bank requires you to take insurance for your life and property. The processing fee charged is 1.25% of the loan amount. Properties financed are Istithmar Realty, Emaar properties and Nakheel. The interest rate charged varies depending on the property.

    • National Bank of Abu Dhabi:

      NBAD offers mortgage to UAE Nationals. The loan amount offered is up to 80% of the property price. The maximum amount offered is AED20 million. The repayment tenure is up to 25 years. The interest rate starts from 2.94%. The processing fee charged is 1% of the loan amount. Mortgage loans are also offered to individuals.


    1. What is home mortgage?

      Home mortgage is where the property owner transfers the title of the home to the lender on the condition that the title will be transferred back once the payment has been made.

    2. What are the different types of mortgages available?

      The following are the different types of mortgages available:

      Capped mortgages

      Current account mortgages

      Discounted mortgages

      Fixed rate mortgages

      Offset mortgages

      Standard Variable Rate mortgages

      Tracker mortgages

    3. What are the different types of mortgage payments available?

      The following are the different types of mortgage payments available:

      Repayment mortgages

      Interest-only mortgages

      Part repayment and part interest only mortgages

    4. What is the maximum tenure for which one can get a mortgage?

      Mortgage repayment tenure can go up to 15-30 years of monthly payments.

    5. Should one take insurance while taking a mortgage?

      Yes, most lenders require you to take a life insurance or mortgage or property insurance when taking a mortgage.

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