The different types of Mortgages in Dubai, UAE

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So you have found your home in Dubai and are looking to get a mortgage to buy the home. There are several types of mortgages in Dubai, UAE and there are two main ways to pay your mortgage.

Islamic and conventional mortgages. With a conventional mortgage, like in most countries a bank will lend you money to buy a home and they will charge interest on this loan. You can pay a fixed rate interest over a period of time or you can pay a tracker rate (may be termed – floating rate in UAE) that rises or falls with a base rate. With a fixed rate mortgage you know what you are paying each month.
Islamic financial institutions are forbidden from charging interest so Murabaha and Ijarah are the two key models used for home loans. With Murabaha financing, the bank purchases a property on behalf of the customer and ‘re-sells’ it to them at a profit. The buyer then pays the bank back through monthly instalments. Ijarah is a buy and lease-back arrangement, where the bank buys the home and rents it back to you. You pay the rent and over time you are buying back more of the home and you would eventually own it.

Residential mortgages – a loan that one or more persons receive to purchase a home that they will live in.

Investment mortgages – a loan used to buy property with the sole intention of generating rental income.

Non-resident mortgages – a loan that is used to purchase non-residential properties like offices, warehouses, land, shops, factories etc..

Commercial mortgages – a loan secured by commercial property, such as an office building, shopping centre, industrial warehouse or apartment complex.

Capped Mortgage – before the loan period starts, a maximum rate is set. If the market increases beyond that limit, it will not affect you, but if the market declines, you will gain an advantage. The monthly instalment would not go above a predefined limit regardless of the market. Capped mortgages are the only rate types that have payment stability, other than fixed rates.

Offset mortgages – a loan that involves mixing a traditional mortgage with one or more deposit accounts you hold with the same bank. The savings balance maintained in the deposit account may then be used to offset the mortgage balance, lowering interest payments due.

Capital and interest/profit mortgages – this is where your monthly mortgage payment will pay the interest on your mortgage and your overall borrowed amount, reducing your overall balance while paying your monthly interest.

Interest only mortgages – you will only pay off your monthly interest but your overall balance stays the same. So after 10 years of paying your monthly interest rate your overall borrowed amount will stay the same and not decrease.

Land and construction mortgages – land loans pay for the land itself and the cost of the construction. You’ll make interest-only payments during the construction phase, and when the home or business is built, it will roll over into a regular principal-plus-interest mortgage payment like a traditional home loan.

Remortgage – a loan on an existing mortgage or a transfer to a new lender. Called balance transfer in the UAE. The same provider can offer this new loan, or you can find a new one. With this method you can potentially get a cheaper interest rate or release equity (money) in your property meaning you get some cash to play with but will have to pay back that cash with a restructured mortgage.

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