What is the average interest rate for a mortgage in Dubai?

Understanding mortgage rates in Dubai 

Like any city in the world, the mortgage rates in Dubai are subject to change every month. There are different types of mortgages available for apartments, houses, or commercial property that buyers can select from depending on their requirements. 

How mortgage rates work in Dubai 

If you are looking to buy an apartment, house, or commercial property in Dubai on a mortgage then you should familiarize yourself with how mortgage rates work in the city. 

In Dubai, a property mortgage generally requires a deposit of at least 15% of the property’s valuation for UAE Nationals, or 20% for Residents. While the bank covers the remaining 80%-85%, you as the buyer will sign a contract that outlines a monthly payment amount that includes interest. 

Depending on the bank/lender, the mortgage terms can range from 5 to 25 years with varying interest rates.  

Current average mortgage interest rates in Dubai 

At the time of writing, the average mortgage rates in Dubai stands between 2.99% and 4.99% - the rate can vary according to factors such as 

• The bank/lender 

• The type of property in question. 

• Your credit score

• Down payment amount 

• Mortgage term length 

• The type of mortgage you select

There are different mortgage types you can select from - the most popular ones being either a fixed mortgage or a variable mortgage. 

Fixed vs variable mortgage rates 

A fixed-rate mortgage has a pre-set interest rate which remains the same for a certain repayment period. This mortgage interest rate is set before the repayment period begins and usually lasts for up to five years. 

However, the interest rate will usually change to a higher rate once the fixed repayment period ends. 

Here are some factors to consider for a fixed-rate mortgage:

• Easier to budget loan repayments 

• A higher reversion rate may impact the mortgage buyer once the fixed repayment period ends 

• The buyer is protected from a sudden increase in interest rates 

• There is no gain from a decrease in the Emirates InterBank Offer Rate (EIBOR) - the benchmark mortgage interest rate for lending banks in the UAE.

• Preferred by mortgage buyers who want shorter repayment terms

On the other hand, variable rate mortgage rates remain, well, variable over the repayment period. This means that fluctuations in EIBOR may impact the variable mortgage rates in Dubai.

Here are some factors to consider for a variable rate mortgage:

• Preferred by mortgage buyers who have enough financial liquidity to combat EIBOR fluctuations 

• If the EIBOR falls, buyers pay lesser interest on their mortgage 

• It is difficult to set a budget due to interest rate fluctuations 

• If the EIBOR rises, the interest rates and monthly payments will increase 

It is important to note that even amidst the different property types, the average mortgage rates will differ depending on the property type you are looking to buy. 

Average mortgage rates for residential properties

For a residential property mortgage, you can choose between a variable or fixed-rate interest. 

You can only obtain complete ownership of the property once your mortgage has been paid off within a specific timeframe. Usually, a residential mortgage offers a repayment period of 25 years, and can also be remortgaged. 

As mentioned above, the mortgage rate for properties in Dubai currently varies from 2.99% to 4.99%. 

Average mortgage rates for commercial properties 

Commercial mortgage properties in Dubai are generally taken by business owners who want to purchase real estate as a corporate asset. If you buy a commercial property in Dubai, you are not permitted to make it your primary residence. 

You can only obtain complete ownership of the property once your mortgage has been paid off within a specific timeframe. Mortgage interest rates on commercial properties are generally lower than on a business loan as the asset (property) you buy will serve as collateral. 

Initially, you may have to make higher payments to your bank/lender. Even for commercial properties, the mortgage rate for properties in Dubai currently varies from 2.99% to 4.99% depending on various factors. 

Factors influencing mortgage rates in Dubai 

Mortgage rates are subject to change depending on various factors. 

Here are certain factors that can impact the amount of money you can borrow and interest you may have to pay as a property buyer in Dubai:

Economic indicators 

Five primary economic indicators impact not only mortgage rates but the entire real estate industry and other sectors in Dubai and globally:

• Gross Domestic Product (GDP) 

• Consumption 

• Investment 

• International trade 

• Inflation 

While Dubai’s economy has seen a rapid rise over the years, it is not immune to global fluctuations. For example, if inflation in the economy increases, interest rates are likely to rise, leading to mortgages becoming more expensive.

Central bank policies 

The Central Bank of the UAE regulates the country’s mortgage market. Under the Central Bank Law, employees of the organization are responsible for regulating and supervising banks and other financial institutions that provide mortgage services. 

While the Central Bank has a range of policies to ensure a fair and transparent mortgage system in Dubai and the UAE, any changes to their policies will impact the very institutions that offer mortgages to property buyers. 

Property type and value 

As mentioned above, the mortgage rate will differ based on the kind of property you are buying (e.g. residential apartment/townhouse/villa or commercial property) and even aspects such as the number of bedrooms, size, and whether it has elements such as a garden and parking can have an impact.  

For example, for expats buying a property that costs less than AED 5 million in Dubai, there is a requirement for a deposit will generally require 20% of the valuation as the initial deposit - with 80% being covered by the bank. 

For properties costing over AED 5 million in Dubai, the deposit requirement can increase to at least 30% of the property's value.

How to secure the best mortgage rates in Dubai 

There are certain steps you can take to secure the best mortgage rates for your property.

These steps will help you come across as a credible buyer in front of lenders/banks and secure lower rates for your loan. 

Improving your credit score 

A credit score is a three-digit metric between 300 and 900, which banks and lenders use to predict the likeliness of a mortgage buyer repaying their loan on time. As a mortgage buyer, your credit score is calculated from a collection of data by banks or organizations wherein you have an account or credit. 

In the UAE, a good credit score is widely thought to be equal to or above 680 points. A score below 620 is considered a bad credit score, which will make it harder for you to secure a good interest rate or even a mortgage altogether.

Kindly note that the credit score criteria may differ per bank/lender, so it is important to follow up with them regarding their credit score system. 

You can improve your credit score by:

• Always paying your bills on time

• Reducing any high interest debt that you have

• Decreasing your credit utilization

Comparing offers from different lenders 

Once you have received offers from different lenders/banks, ensure that you draw up a comparison to decide which property mortgage is good for you. 

Here are some factors you should consider before making the decision: 

• Compare all the different interest rates offered on the mortgage and how any change in the rates may impact your payments over time. 

• Understand the mortgage term repayment period. For example, long repayment terms may have lower monthly payment rates but result in a higher total interest. 

• Ask for all the fees associated with the mortgage including appraisal fees, potential penalties, and processing fees. 
  

It is highly recommended that you speak to an experienced mortgage advisor who can compare all of the available mortgages on your behalf to select the most suitable options.

Negotiating terms and conditions

You are free to negotiate the terms and conditions of your mortgage with a lender/bank. Be sure to negotiate on terms such as:

• The bank’s flexibility to allow extra payments or refinance without a penalty. 

• A lower mortgage interest rate if you have a good credit score. 

• The repayment period and the steps ahead if you miss a certain payment. 

Common mortgage terms and conditions in Dubai

When buying an apartment or a house in Dubai with a mortgage, there are certain terms and conditions you will come across and have to understand for a smooth process. 

Here are some common mortgage terms and conditions in Dubai: 

Loan-to-value (LTV) ratio 

The loan-to-value ratio (LTV) measures how much money you can borrow compared to the valuation of the property you want to buy. It is calculated through the following formula: 

LTV = 100 x Loan Amount/Property Value 

The loan-to-value ratio (LTV) in mortgages is a way to measure how much money you can borrow compared to the value of the property you want to buy. 

The maximum LTV for expats in Dubai is 80% while for Emiratis it is 85%.

Mortgage tenure

A mortgage tenure is the duration of your mortgage. How long or short your mortgage tenure is may impact your finances and budgeting in the long term. 

Depending on your contract with the lender/bank, your mortgage tenure may be anywhere between three to 25 years. You can negotiate your mortgage tenure based on your property valuation and finances. 

Early repayment penalties 

Early repayment penalties are charges imposed by a lender/bank when a mortgage buyer repays their loan before the scheduled term. 

These penalties are safeguards for lenders/banks as they have to compensate for the potential lost interest income because of early mortgage repayment. 

You can negotiate the terms of the repayment penalties with your bank/lender. 

Tips for first-time home buyers in Dubai

If this is your first time buying an apartment, house, or villa in Dubai, fear not! Buying an apartment in Dubai is a major step, here are some tips that will improve your home-buying experience.

Understanding mortgage pre-approval

Obtaining a pre-approval letter is one of the most important steps to getting a property mortgage in Dubai. 

A Dubai mortgage pre-approval letter is an official document issued by the bank as proof of your eligibility for receiving a home loan. It provides an evaluation of your finances and outlines the maximum borrowing amount for your mortgage loan.

To obtain a pre-approval letter, you will have to fulfill the following criteria: 

• Proof of steady income 

• Good credit score 

• Be at least 21 years of age

Some banks follow a criterion outlining the maximum age of mortgage repayment. That criterion is typically: 

• 70 years for UAE nationals 

• 65 years for expats

• 65 years for non-residents 

Budgeting for additional costs 

While there will already be significant costs involved in your property purchase, such as deposit, real estate agent fees, and other upfront costs, it is advisable to keep aside some money for additional costs. 

These additional costs may include insurance fees, maintenance fees, and even government fees - along with any mortgage fees. Budgeting your finances for such costs will ensure that you can handle them without disturbing your finances. 

Seeking professional advice 

Seeking advice from banks/lenders and RERA-registered real estate agents always proves helpful to first-time home buyers. 

Seeking professional advice will help you understand the Dubai real estate market better, receive expert input from seasoned experts, and help you focus on finding your dream home rather than getting caught up with documentation and other things. 

We hope this article gave you a comprehensive understanding of the average interest rate for a property mortgage in Dubai, the current rates, factors that could impact rates, and tips on securing the best mortgage deals for yourself. Now that you’re equipped with the right knowledge, find and buy property in Dubai today.