With the rising number of residential development projects in Dubai, buyers are now spoilt for choice for finding their dream abode. Having said that, the process of buying a home is certainly not an easy one for which buyers opt for a home loan in Dubai. Right from the selection of the locality to the type of houses for sale and snagging services to hire before moving in, a lot of decisions are to be made. However, the one that holds the maximum importance relates to making arrangements for funds.
It can totally change the entire strategy of purchasing a residential property in Dubai. For example, if there are budget constraints, you may not be able to buy a villa you have been eyeing or, in some cases, you will have to rethink about the neighbourhood you have selected as well.
Mostly, people opt for a home mortgage to finance their home. For this, banks and other financial institutes offer different types of loans that vary in terms of repayment options and terms. Let’s have a look at some of them:
Capital and Interest Repayments
Capital and Interest Repayments are repaid in the form of Equated Monthly Instalment (EMI). Each instalment includes capital and interest. The duration of this type of mortgage is decided as per the agreement between the mortgagor and mortgagee.
Generally, the interest rate is higher in the initial years but it reduces later as instalments tend to cover the principal amount, instead of the interest. It is the most commonly used mortgage type not only in Dubai but all over the UAE.
Interest-Only Repayments are only mostly associated with off-plan projects. It is a type of mortgage in which you will only have to pay interest on the amount of loan. Generally, the duration of this type of mortgage is for 5 years. After the end of the term, you will have to repay the principal amount in the lump sum form. If your bank allows it, you can also pay it in instalments.
Down payment refers to the initial upfront payment that is paid at the time of finalizing the transaction. The amount that is to be as down payment varies from bank to bank. The type of loan you have selected and the property type also impacts this upfront amount. For example, developers usually ask for a higher down payment for off-plan properties that can go up to 50% of the total cost.
For expats, the amount they have to pay as the down payment for a property they intend to use for personal use can be between 25 and 35% of the total value of the selected property.
Mortgage Life Insurance
This is both a type of mortgage and life insurance. In this particular type, the life insurance company is responsible for the repayment of home loan in the case of the mortgager’s demise. Usually, people who have dependents who are not financially strong opt for this particular type. It also offers protection for people who have a disability or suffer from a terminal disease.
Fixed-Rate Mortgage Payments
It is a type of mortgage repayment in which the interest rate remains the same through the period the loan is repaid. The rate of interest is determined on the discretion of both parties before they come into an agreement.
The biggest benefit of opting for this type of mortgage repayment is that you wouldn’t have to worry about the fluctuations. So, there will be no chance of interest rate rising and disturbing your budget.
In some cases, the rate of interest is usually fixed for a particular period. Once this period is over, a follow-on rate, also known as variable rate, is applied. The variable rate, as the name implies, keeps changing depending on numerous factors.
This particular type of mortgage repayment can prove to be a little complex, particularly if the fixed interest lasts for a limited period. Thus, you need to be quite tactful and diligent when opting for it.
Variable Interest Mortgage Payments
The interest rate in Variable Interest Mortgage Payments can fluctuate throughout the tenure of the repayment. It is determined taking into account the market conditions.
This type of mortgage can prove to be a good choice if the interest rate is expected to decrease in the future. However, at the same, it can make it tough for you to manage your budget as the amount of instalment can vary because of fluctuations. It is an appropriate choice for people who are financially strong.
The decision of selecting the best type of loan mortgage can depend on numerous factors. Take each of them into account and make an informed decision. Also, make a list of the best banks for mortgages in UAE, and choose your lender wisely.