What are the different types of mortgages available in Dubai?

In order to suit the different needs of the credit seekers, Dubai boasts of unique mortgage products. Knowledge on these options will enable the enlisting of the one that best fits your monetary needs and requirement. Here’s an overview of the main types of mortgages available in Dubai:

Fixed-Rate Mortgages

A fixed rate mortgage has the interest rate that doesn’t change with the term of the mortgage loan. This makes the interest rates to be stable and constant thus enabling borrowers to forecast their finances without having to worry about future changes in interest rates. Usual fixed rate periods vary from one year to five years, nevertheless few lenders will definitely allow fixed rates as high as 10 years.

Variable-Rate Mortgages

Biennial mortgages or the adjustable-rate mortgages have an element of fluctuation of their interest rates in every definite time or based on the current market rates. The rates are mostly based on an Index like the emirates Inter bank offered rate ( EIBOR ) plus a spread. These mortgages usually commence with lower rate than fixed rate mortgages but this feature stands a chance of exposing borrowers to higher payments resultant from higher interest rates.

Interest-Only Mortgages

Interest-only mortgages enable the borrower to just make interest payments on the loan for some time in a range between 3 and ten years. It is common for such periodical payments to include only interest and after the term of the loan, the borrower has to pay both principals and interest. This type of mortgage is ideal for the investors that expect their income levels to grow in future or those that intend to dispose the property before the period of time when they have to make the principal payments.

Discounted Rate Mortgages

Fixed rate mortgage entails a lower cost compared to the lenders standard variable rate for a specific period, which ranges from 2 to 5 years. This is can lead to the creation of small initial payments. Nevertheless, once the discount period elapses, the interest rate goes back to the lender’s standard variable rate, which is usually expensive.

Capped Rate Mortgages

Capped rate mortgage has a fluctuating interest rate but the rate cannot exceed a certain level of a capped rate in the period of cap. This helps the borrowers to at least avoid high interest rates while the lenders can benefit if the rates reduce​.

Remortgages

Basically, remortgaging is a process of changing your initial mortgage to another mortgage, with the same lending company or another one. This can be done in order to negotiate better of terms, lower cost of interest or to get equity from your property.

Sharia-Compliant Mortgages

There are sharia compliant mortgages for those who are interested in getting an Islamic financing. These mortgages do not include interest charges but employ such methodologies as Ijara which is leasing or Murabaha, which is cost plus. The bank acquires the property and pays a nominal rent to the borrower on which the borrower pays rent till the amount is fully paid then the property reverts to the borrower​.

Selecting the best mortgage in Dubai depends on ones financial status, the future plans and on capabilities to handle risks. When it comes to mortgages, fixed-rate mortgages offer more stability that adjustable rate, while variable rate gives you chance to save big, interest only mortgages meets the needs of those planning to recoup their initial costs and Sharia-compliant mortgages caters for Islamic home buying needs.