How to calculate mortgage affordability?
If you’re wondering how to calculate mortgage affordability, bear in mind that most banks will calculate affordability slightly differently, but a general rule of thumb is that they will take only 50% of your monthly income into account when calculating this.
From this 50% they will then deduct any other credit commitments you have (e.g. car loans, personal loans and approximately 5% of all your credit card limits), to work out your maximum affordability.
They will then carry out a stress test by applying a stress rate of interest which varies between 3.5% to 8% depending on the bank. The aim of this is to confirm that you will still be able to afford your mortgage repayments if the interest rates were to increase to the test level.
How much down payment do I need for a mortgage?
The minimum down payment for a property under AED 5million is 20% for an expat or 15% for a UAE national. The minimum down payment for a property over AED 5million is 30% for an expat or 25% for a UAE national.
What if my down payment is too small?
If your down payment is too small, it may be worth considering liquidizing any investments, borrowing from family or you can look at a smaller property.
What are the age limits for getting a mortgage?
The minimum age limit is generally 21 and the maximum term is up to age 65 for employed expats or 70 for UAE nationals and self-employed expats.
What is the difference between an Islamic and conventional mortgage?
A conventional mortgage is where your loan repayments will include paying a rate of interest to the bank, this is their profit for lending you the funds.
An Islamic mortgage differs from a conventional mortgage because under Shariah Law it is forbidden to charge interest on a loan, so in this case banks will buy the property on your behalf and rent or lease it back to you for a profit.