There are many different types of mortgage loans available, each offering different features and benefits.
There are also various ways in which mortgage loans can be repaid. The type of mortgage loan that will suit you best depends entirely on your circumstances both now and in the future. This fact sheet is designed to help you choose the most appropriate repayment method for your circumstances.
If you are purchasing a property that is under construction, you will need to choose a repayment method for the build phase as well as a repayment method for when the property has been completed.
Repayment Mortgage Loans
With Repayment loan, your monthly payments are made up of two elements; one to pay the interest and one to pay the capital.
During the initial stages of the loan, the majority of your monthly payments cover interest although some capital is repaid. Over time, as the capital is reduced, less interest is charged and more capital is repaid reducing your loan further. The exact proportion of capital repaid in relation to interest paid is dependent on the term of the loan. A shorter term generally means that you will start to pay more capital than interest at an earlier stage.
A Repayment loan is the only option that will guarantee to repay your loan over a defined term provided that you keep up with payments. Repayment loans are only available during the completed property phase.
Interest-Only Mortgage Loans
With an Interest-Only loan, your monthly payments cover the interest and no capital is repaid. As you are repaying only the interest, your monthly payments are lower than a similar value Repayment loan.
However, over the longer term, an Interest-Only loan will typically cost more money than a similar value Repayment loan as the balance that interest is calculated on will not have reduced. Furthermore, you would still need to find a way to repay the capital at the end of your mortgage loan term.
An Interest-Only repayment method can be selected for both under construction property phases as well as completed property phases. Please note that you will be eligible to borrow a lower proportion of the value (or purchase price) of your property if you select this repayment method during the completed property phase.
Combination of Repayment and Interest-Only Mortgage Loans ("Part and Part" Mortgages)
With a Part and Part loan, a proportion of the loan is treated as Interest-Only and a proportion of the loan is treated as Repayment. Therefore you will still need to find a way to repay a proportion of the outstanding capital at the end of your mortgage loan term.
Your monthly repayments are lower than a similar value Repayment loan, however, higher than a similar value Interest-Only loan as the payments made will include an element of capital repayment.
Over the longer term, you would pay more interest on a Part and Part loan than on a similiar value Repayment loan, as more of the debt remains unpaid throughout the term.
Please note that you will be eligible to borrow a lower proportion of the value (or purchase price) of your property if you select this repayment method. Part and Part loans are only available during the completed property phase.
Interest Roll-Up Mortgage Loans
This option is only available for under construction properties that will be purchased directly from certain developers. Please note that the under construction phase must also be less than three years from the date of first disbursement to completion.
During the period of Interest Roll-Up, no actual payments are made and instead the interest is ‘rolled-up' until the final stage payment has been made to developer. At this time, the rolled-up interest can be paid in one lump sum or added to your mortgage loan.
As payments are being rolled-up, the loan amount on which interest is being calculated becomes larger each month. This effect is known as compound interest which means that you are likely to pay more interest than if you had selected an Interest-Only repayment method during the under construction phase.
Please note that you will be eligible to borrow a lower proportion of the value (or purchase price) of your property if you select this repayment method. Also, in the event that the completion of your property is delayed or if your interest rate increases to 12% per annum or more, the loan will be converted to an Interest-Only loan for the remaining under construction phase.
The table below provides an illustration of monthly repayments and the total amounts repayable based on an AED 1,000,000 loan taken over 25 years on a variety of different methods.
|
Repayment Type |
Total Loan AED |
Amount on
|
Amount on |
Interest Rate |
Monthly
|
Total Amount Repayable AED |
|
Repayment |
1,000,000 |
1,000,000 |
NIL |
7 |
7,068 |
2,120,338 |
|
Part & Part |
1,000,000 |
900,000 |
100,000 |
7 |
6,944 |
2,183,304 |
|
Part & Part |
1,000,000 |
800,000 |
200,000 |
7 |
6,821 |
2,246,270 |
|
Part & Part |
1,000,000 |
600,000 |
400,000 |
7 |
6,574 |
2,372,203 |
|
Part & Part |
1,000,000 |
500,000 |
500,000 |
7 |
6,451 |
2,435,169 |
|
Interest Only |
1,000,000 |
NIL |
1,000,000 |
7 |
5,833 |
2,750,000 |
|
Please note the above calculations do not include additional fees that can be added to the loan such as the processing fee |
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The table below gives an overview of monthly repayments and the total amounts repayable on an Interest Roll-Up method that is converted to Repayment after completion of the property in two years. The example is based on AED 1,000,000 released in five stages on a loan taken over 25 years. No payments are made on the loan until the final stage payment is released. Once the final stage payment is released in month 25 the mortgage loan is converted to a Repayment loan.
|
Months
|
Amount of Loan Disbursed
|
Total Outstanding Balance to Date |
Interest Rate |
Monthly |
Total Amount Repayable |
|
1 |
200,000 |
200,000 |
7 |
NIL |
N/A |
|
7 |
200,000 |
407,103 |
7 |
NIL |
N/A |
|
13 |
200,000 |
621,561 |
7 |
NIL |
N/A |
|
19 |
200,000 |
843,635 |
7 |
NIL |
N/A |
|
25 |
200,000 |
1,073,596 |
7 |
NIL |
N/A |
|
25 to 300 |
N/A |
1,073,596 |
7 |
7,836 |
2,236,439 |
|
Please note the above calculations do not include additional fees that can be added to the loan such as the processing fee |
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Your property is at risk if you do not keep up repayments on a mortgage or other loan secured on it. Conditions apply. All applications are subject to Abu Dhabi Finance approval.
