Real Estate Financing Options in UAE: Mortgages, Loans, and Government Schemes

Real Estate Financing Options in the UAE

Have you ever considered the possibility of becoming a homeowner in the UAE? Well here’s some news! There are real estate financing options in UAE you can explore to make your dream come true. You have the option of utilizing mortgages and loans as well as some interesting government programs. 

Let’s delve into these alternatives together and discover how you can transform your aspiration of owning a house in the UAE into a reality.

Difference between Home Loan and Mortgage

Alright, let’s start the real estate financing options in UAE by understanding the distinction between home loans and mortgages because there seems to be some confusion among people who think they are identical.

A mortgage is an agreement that revolves around real estate, where the property acts as collateral, for a loan. In contrast, a home loan is a type of mortgage designed specifically for buying residential properties. Essentially a home loan falls under the umbrella of mortgages but focuses specifically on purchasing homes.


Real Estate Financing Options in the UAE

Here are some types of mortgages and let’s discuss them in detail so there is nothing left that you need to know.

1. Fixed Mortgage

A fixed mortgage is a type of home loan where the interest rate remains constant throughout the entire term of the loan. This means that your monthly mortgage payments remain predictable and do not fluctuate with changes in market interest rates. 

Fixed mortgages are typically available in terms ranging from three to ten years, although longer terms may be possible.

The advantage of a fixed mortgage is that it provides stability and predictability, making it easier for homeowners to budget since they know exactly how much they need to pay each month. However, the downside is that if market interest rates decrease, you won’t benefit from lower rates.

2. Variable Mortgage

Unlike a fixed mortgage, a variable mortgage (also called an adjustable-rate mortgage or floating-rate mortgage) features an interest rate that can change periodically based on market interest rate fluctuations. As a result, your monthly payments may vary throughout the loan duration.

Variable mortgages, one of the real estate financing options in UAE, typically commence with an initial interest rate compared to fixed mortgages appealing to borrowers who anticipate stable or decreasing interest rates. However, there is a risk involved if interest rates increase, as this could lead to monthly payments.

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3. Mortgage Offset

A mortgage offset is an arrangement where the borrower connects their mortgage account to a savings or transaction account. 

The balance in this linked account is then subtracted from the balance of the mortgage when calculating interest. In terms, the borrower only pays interest on the actual amount of the mortgage (the remaining balance after deducting the linked account balance).

This type of mortgage can assist borrowers in reducing the interest paid throughout the duration of the loan and potentially shortening its term. It also offers flexibility as borrowers can access funds from the linked account if necessary. 

However, it’s worth noting that the interest rate on a mortgage offset loan might be slightly higher compared to a mortgage.

Home Loans

Below are mentioned, some different types of home loans as real estate financing options in UAE:

1. Housing Personal Loans 

Housing personal loans are a financial tool that helps individuals achieve their goal of owning a home. These loans are specifically designed to cover expenses related to housing, such as buying a property or making improvements.

Unlike mortgages, housing personal loans offer more flexibility. Borrowers can use the funds for housing needs. These loans usually come with either a variable interest rate or have different repayment terms. Housing personal loans are a choice for those who need customized financing options that match their specific housing requirements.

2. Home Equity Loans 

Home Equity Loans allow homeowners to tap into the value they’ve built up in their property. This value, known as equity, is the difference between the market value of the property and the remaining mortgage balance. By taking out a Home Equity Loan homeowners can borrow money against this equity and receive a lump sum payment.

These loans usually come with fixed interest rates and predictable monthly payments. Homeowners often use them for expenses like home improvements, education costs or consolidating debt.

One advantage of Home Equity Loans is that they provide access to an amount of money based on the property’s value. However, borrowers should be aware of risks, such as fluctuations, in property values.

3. Islamic Financing

Real Estate Financing Options in the UAE

Islamic Financing is an approach to home financing that follows Sharia principles, which prohibit the payment or receipt of interest (Riba). One popular method of Islamic Financing for homes is known as Ijara. Under this arrangement, a financial institution buys the property. Leases it to the buyer for an agreed-upon period.

During this lease period, the buyer pays rent. Once all payments are made ownership of the property is transferred to them. This structure ensures that Islamic principles are upheld by focusing on profit and risk sharing rather than charging interest.

There are also models of Islamic financing available, such as Mudarabah and Musharakah. These models provide options for individuals to fulfill their aspirations of homeownership while remaining compliant, with their religious beliefs.

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Government Schemes for real estate financing options in UAE

The government has instituted specific Loan to Value Ratio (LTVR) regulations to facilitate property acquisitions for both UAE Nationals and Foreigners. So, let’s grasp some important details.

For UAE Nationals

For properties valued up to AED 5M, first-time UAE National home buyers can secure a maximum LTVR of 80% of the property value. If the property exceeds AED 5M, the LTVR is capped at 70% of the total price. Those purchasing a second home enjoy a maximum LTVR of 65% of the property’s value, regardless of the property’s price.

For Foreigners

Foreigners acquiring their initial property with a value less than or equal to AED 5M can access a maximum LTVR of 75%. If the property surpasses AED 5M, the LTVR becomes 65% of the total price. Foreigners acquiring a second home can secure an LTVR of up to 60%, irrespective of the property’s value.

Final Thoughts

Ultimately deciding on the financing method for your dream in the UAE is similar, to selecting your preferred ice cream flavor. There are numerous choices available and it all comes down to what suits you best.

So, as you think about getting your own home in the UAE, remember to explore real estate financing options in UAE, ask questions, and find the sweetest deal that makes you happiest. Good luck with your home adventure!

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