Exploring the Types of Mortgages in Abu Dhabi: A Guide to Financing Your Dream Home

For many, purchasing a home involves more than selecting the right property. It also requires choosing the right financial option that supports both immediate goals and long-term stability.

Mortgages play a vital role in turning homeownership aspirations into reality. With property considered a significant investment, the financial decisions you make can have a lasting impact on your goals.

Understanding the different types of mortgages in Abu Dhabi is a great start that can help you focus on enjoying your new home instead of worrying about paying for it now and in the future.

What Is a Mortgage?

A mortgage is a type of loan you take from a bank or lender to finance the Abu Dhabi property for sale you want to buy.

It is a secured loan that you repay in monthly installments over a specific number of years, typically five to 25 years. The lender charges you interest based on the amount you borrow.

A Guide to the Different Types of Mortgages in Abu Dhabi

Below are the different types of mortgages you can apply for if you are interested in this financing option to buy a home in Abu Dhabi:

1. Fixed-Rate Mortgage

A fixed-rate mortgage comes with an interest rate that doesn’t change throughout the tenor or loan repayment period. This means you need to pay the same mortgage amount until the end of the loan term, which is usually five years or shorter.

The most notable advantage of fixed-rate mortgages is that they allow you to plan your payments easily for many years. This is because you know the exact monthly amount you need to pay until the end of the loan term.

However, if the rates drop, you still need to pay the same amount, which means you won’t be able to take advantage of the lower rates.

If the interest rates at the time of your application are high or are expected to decrease in the future, a fixed-rate mortgage may not be your best option. You won’t benefit fully from this type of loan.

2. Variable-Rate Interest Mortgage

Variable-rate or adjustable-interest rate mortgages pertain to mortgages with interest rates that change based on the interest rate at the time your payment is due.

This interest rate may increase or decrease based on the Emirates Interbank Offered Rate (EIBOR) rates.

If you opt for this type of mortgage for an apartment, townhouse, or villa for sale in Abu Dhabi, you can enjoy lower interest rates when they occur. However, you must pay higher rates if they increase.

Most borrowers choose this mortgage when the interest rates at the time of their loan application are higher than usual or are expected to decrease in the future.

Variable-rate interests are often divided into two subcategories: discounted rate and capped mortgages.

With a discounted rate mortgage, the interest rate is set at a percentage below the lender's base rate. The discounted rate is usually only applicable for a specific period of two to five years, which means you may end up paying higher installments when this period ends.

This type of mortgage is often recommended to first-time homebuyers in Abu Dhabi.

On the other hand, capped mortgages come with interest rates that fluctuate, but don’t exceed an established cap. It protects borrowers against rising interest rates.

Unfortunately, not many lenders offer this type of mortgage, and because of the predetermined cap, it often comes with more fees.

Variable-rate mortgages are recommended to borrowers with the financial liquidity to manage any increase in repayments.

3. Remortgage

A remortgage lets you transfer your current loan to a different bank or lending company. This option also allows borrowers to take a new loan on an existing mortgage.

With this option, you can take out a mortgage to buy the property, and remortgage it if you find a financing plan more suitable for your circumstances.

You can choose this type if you want a mortgage with a lower interest rate or a longer payment term. However, be prepared to pay a closing fee when you remortgage your loan.

4. Offset Mortgage

An offset mortgage lets you link your mortgage with one or more of your savings, current, or credit card accounts. You’ll pay less interest when you have more money in your account. 

You can pay the mortgage for a villa, townhouse, or apartment for sale in Abu Dhabi by accessing the linked account. You can also set up the payment in a way that the money will be directly transferred to the lender.

Offset mortgages come with slightly higher interest rates than other loan types. You may also be charged an annual fee. As such, ensure you have the financial stability to manage payments.

5. Islamic Mortgage

With the Islamic mortgage option, the bank buys the property on your behalf and lets you purchase it through installments. This mortgage complies with Sharia principles, which means you don’t have to pay any interest.

This type of house loan ensures all transactions are based on asset ownership and risk-sharing, which are important Islamic banking values.

There are three types of Islamic mortgages. These are:

Ijara

The ijara is a lease-to-own arrangement in which the lender buys the property and leases it to you. You pay the rent monthly, and at the end of the mortgage term, the lender transfers ownership to you.

Murabaha

The murabaha cost-plus financing option would have the bank purchase the property at market value and sell it to you at a marked-up price. You then pay the fixed installments over a predetermined period.

Diminishing Musharaka

The diminishing musharaka option refers to a partnership arrangement wherein you and a bank purchase the property together. Your share increases as you repay the loan. You will become the sole owner once you have fully paid the mortgage.  

Islamic home loans are transparent and offer predictable, competitive payment terms, which is why they are a popular option for many homebuyers in Abu Dhabi.

Tips for Choosing the Right Mortgage

Once you have a clear picture of the various types of mortgages, you can select the right one with these tips when buying an apartment, a townhouse, or a villa in Abu Dhabi.   

1. Ensure you meet eligibility requirements.

The basic mortgage requirements typically include stable employment, a source of income, and good credit history.

2. Compare rates.

Look into the interest rates offered by different banks and lending companies. Check the current market rates and predictions and factor those into your decision as well.

3. Consider all fees.

In addition to interest rates, make sure you know the exact loan amount and deposit you need to pay for the entire tenure. Also, check for other associated costs, such as processing and valuation fees.

4. Select a trusted mortgage lender.

Read reviews about the lender and check their industry ratings to ensure you get a fair deal. Find out if they offer flexible repayment options so you can reduce your worries about any possible problems in the future.

5. Obtain a pre-approval.

A pre-approved loan gives you an idea about the amount you can borrow from a lender and helps make you more attractive to sellers. This document also outlines all the fees you need to pay and important terms and conditions you need to know about.  

Speak with a mortgage specialist if you need more details about each option and help with choosing the right one that suits your budget and lifestyle.

Contact us to learn more about our properties eligible for a mortgage.