Although there are several lenders that will provide mortgages based
in Dubai we recommend that you set up your mortgage in the UK. We
have compiled some useful information when choosing a mortgage for
your property in Dubai.
Fixed Rate Mortgages
The monthly interest rate will stay the same for a set period of
time, for example, between 2-5 years. At the end of the fixed rate
period your rate will usually change to the Variable rate.
Your payments go up and down as the mortgage rate changes. Mortgage
rate movements usually respond to changes in the base rate set by
the Bank of England’s Monetary Policy Committee. This would
not apply to LIBOR rate products.
Pros:
You are guaranteed that your rate will be exactly the same every
month for the duration of the fixed rate term – even if other
interest rates rise during this period. You can confidently plan
your budget for the whole period, because you’ll know in advance
exactly what your major outgoings will be
Cons:
If other interest rates fall during the set period, then the amount
you pay during the fixed rate term may be higher than if you had
chosen a mortgage type where the interest rate is allowed to rise
and fall.
Variable Rate Mortgages
The 'Variable' rate for the purposes of our Mortgage Guide, means
either the lender's standard variable rate (SVR) or those rates
which track an external rate (such as the Bank of England base rate
or LIBOR) or tracker rates. 'Variable' means the rate can go up
and down.
Pros:
The rate you pay may fall if mortgage rates in the market fall -
this means your payments may go down. A variable rate without any
special incentives may allow you to repay some or all of your loan
without having to pay early repayment charges.
Cons:
Your payments may increase if mortgage rates rise. So unless you
can afford increases in your payments, you may be better off with
a mortgage where the rate is fixed for a period of time (giving
you time for your income or earnings to increase).
Capped
Rate Mortgages
Your payments are linked to a Variable rate which means that payments
may go up or down - but the amount the rate can rise to is restricted
to an upper limit (known as the 'cap' or 'ceiling') for a set period
of time. There is a similar mortgage called a Cap and Collar Mortgage,
where the rate you pay does not fall below a lower limit (known
as the 'collar' or 'floor'). At the end of the cap (and/or collar)
period you are usually charged at the Variable rate.
Pros:
These mortgages provide certainty that the Variable rate charged
to your mortgage will not rise above the cap. This means you are
protected from significant rises in Variable rates. This will help
you to budget. In addition, you will be able to enjoy a lower rate
if interest rates fall.
Cons:
May not be as beneficial as a fixed rate mortgage if rates rise,
as the upper limit of a capped rate is often higher than a fixed
rate. For example, if the Variable rate rises to the cap level and
remains at this level for a significant period of time, then a fixed
rate mortgage below this level may have been better value.
Discounted Rate Mortgages
Your payments are based on a discounted rate set at a certain level
below the Variable rate for a specific period of time, which means
your payments may go up or down. For example, a 1% discount for
12 months off a Variable rate of 5% would mean a pay rate of 4%
for 12 months. Sometimes these discounts are stepped over a period
of time, for example, a discount of 2% in year one followed by a
discount of 1% in year two. After the set period the Variable rate
usually applies.
Pros:
Provides you with lower payments in the early years to help with
the cost of moving or setting up in your new home. A discount that
gradually reduces means you do not usually face a significant increase
in payments when the discount period ends.
Cons:
If interest rates rise whilst you are on a discount, your payments
may increase.
Cashback Mortgages
Instead of receiving a discount, you receive a single lump sum or
cashback generally based on the value of your loan at the time you
take out your mortgage. For example, on a £100,000 mortgage
with a 3% cashback, you will receive £3,000. Your monthly
payments are usually linked to a Variable rate, which may go up
and down in line with interest rate changes.
Pros:
It means money in your pocket at a time you may need it most. It
can provide you with a very useful contribution to the cost of moving,
or helping you pay for the decorating and refurbishment work you
may have planned for your new home.
Cons:
Because of the lump sum you receive at the start of your mortgage,
your rate may not be as attractive as some other mortgage types.
The cashback you receive is not usually available to use as a deposit
on your mortgage, as it is only generally available after you complete.
Tracker
Mortgages
Your interest rate is directly linked to an independent rate, such
as the Bank of England base rate or the 3-Month LIBOR (the London
Interbank Offered Rate) for a set period of time. For example, your
rate may be 1.5% over the Bank of England base rate for a period
of three years.
Pros:
You’re rate will reflect the independent rate being tracked.
This means when the independent rate falls, you are guaranteed to
benefit from the rate reduction in full at pre-agreed times.
Cons:
If the independent rate rises, your rate will automatically rise
so you may find you are paying a rate which is higher than other
variable rates.
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