Unfortunately, mortgages aren't something you learn about in school. Often it’s only when you start to think about buying a home that you’re tasked with the somewhat overwhelming burden of figuring out what a mortgage actually is and how it works. Then you have to figure out where to get one and which provider to use. We break down what a mortgage is, how it works, and where to get one for you.
What is a mortgage?
In its simplest form, a mortgage is a loan from a bank in order to purchase a property. That property is then used as collateral for the money that is being borrowed.
It is rare for someone to be in a position to purchase a property outright without borrowing money. Instead, most people pay a percentage of the cost up front (a down payment), normally around 20% for non-UAE nationals and 15% for UAE nationals, in the UAE, and borrow the rest with a mortgage. Over five to twenty-five years, depending on the terms of your mortgage, you’ll pay back the amount you borrowed plus interest, usually in monthly installments.
How do mortgages work?
There are many different types of mortgages that have varying terms and conditions, which affect how your repayments work and how long you will be repaying for. In the UAE there are several different types of mortgages that have varying repayment terms. You can learn more about the different types of mortgages in our blogs, ‘what is a fixed-rate mortgage’ and ‘variable-rate mortgages explained’.
Where do I get a mortgage from?
There are a few ways to get a mortgage. If you are confident about doing the research and finding yourself the best deal you can go directly to your bank of choice. It can be confusing, however, as there are different types of mortgages and your borrowing capabilities will depend on your specific case.
If you need help deciphering the different types of mortgages and what you qualify for, you can go to a mortgage broker. A mortgage broker uses their mortgage expertise to find you the best deals across all banks (although it’s worth checking they’re not tied to a specific lender). There are fees involved with traditional mortgage brokers, which is something you should take into consideration.
If you want to avoid the extra fees but still need help understanding what mortgage is right for you, you can opt for an online mortgage broker (like Huspy).
What if I want to sell my property?
If you sell your house before you’ve paid back your mortgage you’ll use the funds from the sale to repay the remainder of your mortgage in a single payment. If the value of your property is greater than what you paid, it means your property has equity. Equity is the difference between the value of the property and the amount owed on the property. If you have equity, when you sell your property you’ll keep the excess funds left over from the sale after you’ve settled your mortgage.
Still have questions about mortgages? You can talk to our mortgage experts for free.