What a Dubai mortgage costs beyond the interest rate
A mortgage adds roughly another one and a half per cent to a transaction, and one of those items is payable whether or not the loan is approved. The four costs, the insurance the bank will require, and why they are not financed.
Mortgage comparisons in Dubai are usually a comparison of headline rates. The rate matters, but it is not where the surprises are: a mortgage adds roughly a further one and a half per cent to the cost of the transaction itself, all of it payable at or before transfer, and none of it financed by the loan.
For a cash purchase the rule of thumb is 7–8% above the price, dominated by the Land Department's 4% transfer fee. A mortgage sits on top of that.
The four items
- Registration of the charge with the Land Department: 0.25% of the loan plus a small fixed fee.
- The bank's arrangement fee: up to 1% of the loan, and negotiable. It is one of the few genuinely negotiable numbers in a Dubai transaction, and a borrower who never asks never finds out.
- The valuation: a few thousand dirhams, payable whether or not the loan is approved. This is the item people are not expecting.
- Life and property cover, which the bank will require for the term of the loan. Premiums vary with age and cover, and the bank's in-house product is not always the only option.
The valuation decides the loan, not the price
Lending is sized against the bank's valuation rather than the agreed price. Where the valuation comes in below the price, the shortfall is the buyer's to cover in cash — the bank does not lend against enthusiasm. That is the mechanism behind most collapsed financed deals here, and it is the reason a financed offer and a cash offer are not the same offer to a seller even at the same number.
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What a non-resident is looking at
- Up to 60% loan-to-value, so the deposit starts at 40%.
- Fixed rates from roughly 5.5%, against around 4% for a resident.
- Underwriting upward of two months. Timetable the purchase around it rather than against it.
- An average balance of about $11,000–14,000 over six months is commonly asked for as evidence.
- A resident sees a different market: up to 80% financing, a deposit from 20%, and terms of up to 25 years.
Where a mortgage is used that buyers overlook
A mortgage can be used to settle the final tranche of an off-plan payment plan. That is worth planning at the beginning rather than at the end: banks look at the property, the developer and your income, and a refusal at the moment the final payment falls due means a forced sale at whatever price is on the table. The back-loaded plan that makes an assignment look attractive is the same plan that makes this scenario painful.
Budgeting it properly
- Put all of it in the transaction budget, not in "later". These costs fall due at transfer and are paid in cash.
- Get the arrangement fee and the early-settlement terms in writing before you commit. Early settlement carries a fee under the central bank's rules, and it becomes relevant the day you decide to sell.
- Add the running costs to the affordability test: the service charge and cooling run alongside the instalment, whether the flat is let or empty.
Based on UAE Central Bank mortgage regulations and Land Department registration fees.
In the news
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