The first and the initial step for finding the right bank for a mortgage loan is knowing what type of mortgage you want and how many types of mortgages are available in UAE, that suits your need. Financial institutions provide various types of mortgages, out of which the borrowers choose one based on their preference as well as eligibility. If you are struggling with the different types of mortgages, too, and trying to figure out which one of them might be the best for you, we have got you covered. Given below are the standard types of mortgages available in the UAE. Read below…
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In fixed-rate mortgages, the rate of interest is determined well in advance before the onset of the term of the loan. It remains the same throughout the period for which the rate is set. This particular type of mortgage is usually offered for two, three, or four years, but if you are lucky, you might as well grab the offer of a fixed rate for the entire term of the loan. Fixed-rate mortgages have a whole lot of advantages, some of which are as follows:
- In fixed-rate mortgages, borrowers are able to find a clear budget since they know that the rate of interest will remain the same throughout the term of the loan.
- Even if mortgage rates rise in the future, it will not be a problem for the borrowers since a fixed rate of interest has been locked.
- The borrowers know in advance how much they will be paying each month.
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Unlike fixed-rate mortgages, the rate of interest in visible-rate mortgages is susceptive to change throughout the course of the term of the loan. In this type of mortgage, the rate of interest is dependent on market factors. Before you opt for a variable-rate mortgage, make sure you keep the following factors in mind:
- It can be of advantage to the borrowers if the interest rates in the market stabilize or decrease at some point in time.
- Borrowers should make sure that they have the financial stability to handle any change in mortgage rates before they opt for variable-rate mortgages.
Discounted Rate Mortgage
Under a discounted rate mortgage, financial help is provided based on a standard yet the variable rate of interest. This is because a discount is provided on the rate for a given period of time, usually for the first three months of the term. This type of mortgage might seem to be the cheapest option, but can be troublesome in the long term, since the discount is provided for a limited time only.
Capped mortgages are similar to variable-rate mortgages except for the fact that a maximum cap is set before the term begins. If the market rates increase, the monthly installment will not go beyond the predefined cap. Keep in mind that capped mortgages are also only valid for a limited time as an introductory offer.
A remortgage is getting a mortgage loan on an existing mortgage or a transfer of the existing mortgage. The loan can be taken from the same lender or a different lender. The concept of remortgage is helpful if the new loan is provided on low-interest rates or if the loan holder is in need of additional funds.
An offset mortgage is a rather new concept in the UAE, under which, loan holders can link their savings account, current account, credit card account, and the loan account. Whenever some funds are credited on any of the accounts the loan amount gets reduced by an offset of the credited amount.
Purchasing a place of residence is sure a pleasant experience, but it only gets better if it is well-planned and given its due time. It is of great importance that you figure out what financial product might be best for you as a home mortgage is something that will have a huge financial impact even long after it is signed. Therefore, we hope that this article resulted in you bringing you a step closer to your final decision.