A mortgage is a type of loan, where the borrower pledges the property as the collateral for the loan. The mortgages help the borrowers to buy properties or invest in real estate. But that is not enough. Many types of mortgages are here and the most common are luxury mortgages and conventional mortgages.
How are they different from each other and in which situation these mortgages are applicable? Let’s head further and find out.
What Is Luxury Property Mortgages?
Luxury Property Mortgages or high net worth mortgages are specialized home loans that are designed to cater to the needs of the individual who wants to purchase a high-value home or any other property.
The jumbo mortgages typically exceed the limits of traditional conforming loans. Dubai is known for its high-end residential and commercial properties and the private mortgage lending market is quite competitive here.
These loans usually exceed the limits that are AED 3 million for expats and AED 5 million for UAE nationals. Some banks and financial institutions in Dubai offer specialized financing products that are developed specifically for high-net-worth individuals. These products include
Such as large loan amounts, longer repayment terms, and competitive interest rates.
Relevant: Top Investment Banks in Dubai
When To Get Luxury Property Mortgage?
These luxury or super jumbo mortgages in Dubai are suitable for individuals who want to purchase high-priced property in the city. Here are some situations where getting high-end property loans is appropriate;
Purchasing a luxury property: if you want to get a high-value property in Dubai for example a villa or luxury apartments, then the luxury mortgage can be helpful for you to finance the purchase. This is especially true if you don’t have sufficient cash reserves to make a purchase.
Expanding the property portfolio: As a real estate investor who is looking to expand the property portfolio in Dubai, a luxury mortgage will be a good choice. This can be a good option if you can generate rental income from the property. This will allow you to offset the mortgage payments.
Taking advantage of the favorable interest rates: If you can secure a favorable interest rate on the luxury property mortgage, then it might make sense to take out a loan to purchase a high-value property.
Relevant: Can Expats Buy OFF Plan Property on Mortgage in Dubai?
What Are Conventional Mortgages?
Conventional mortgages on the other hand refer to home loans that are provided by private lenders such as banks or any other financial institutions rather than being guaranteed or insured by a government agency.
In Dubai, conventional mortgages are a very popular choice to finance residential properties, especially the expatriates who are not eligible for government-backed home loans.
The terms and conditions of conventional mortgages depend upon the lender and the creditworthiness of the borrower. Usually, the loans require a down payment of at least 20% of the value of the property. However, some lenders offer loans with a lower down payment.
The interest rates and repayment terms of conventional mortgages in Dubai are also discussed by the lenders as the situation of the credit score of the borrower and the financial history.
When To Get The Conventional Mortgage?
A conventional mortgage might be a better option in the following situations:
You have a good credit score: Conventional mortgages generally require a higher credit score than government-backed home loans. If you have a credit score of 680 or higher, you may be eligible for better interest rates and more favorable loan terms.
You have a stable income: You can go for the conventional mortgage if you have a stable income. On average the lender prefers to not have a more than 43% of debt-to-income ratio.
You want more flexibility: Conventional mortgages in Dubai offer the borrower flexibility in terms of the loan amount, repayment terms, and interest rates compared to government-backed loans.
Luxury And Conventional Mortgage Difference
The main difference between these two is the loan amount. The luxury mortgages are higher than the conventional ones as they are designed for higher-priced properties. In general, the luxury mortgage is for properties with a value of over AED 5 million. On the other hand, a conventional loan is for economical properties.
The down payment for luxury mortgages is 30% or more while the conventional loan’s down payment is 20% or less.
The interest rates for luxury mortgages are much higher than conventional mortgages because of the difference in the price of the properties. And the loan terms are also different. As for luxury mortgages, the repayment duration is shorter and the monthly payments are larger while it is the opposite for the conventional loan.
So, these are the difference between luxury and conventional loans and you can choose which one is suited for you as per your accordance. Both have their own importance according to the situation and it all depends on you, in which situation you are to choose one.