Maximise savings and reduce interest with offset mortgages
Many homebuyers rely on mortgages to secure their dream homes. Whether you’re purchasing your first property or upgrading, understanding mortgage basics is crucial. One option to consider is an offset mortgage, which links savings accounts to your home loan. Here’s how they work and their long-term benefits.
What is an offset mortgage?
With a conventional mortgage, your loan remains separate from your daily finances. You make fixed monthly payments, covering both the principal and accrued interest until the mortgage is fully repaid. If you have a fixed-rate mortgage, your monthly payment remains unchanged.
In comparison, here is how mortgage offset accounts work. An offset mortgage links your home loan with your current account and sometimes your credit card or savings accounts. The total balance of these linked accounts helps reduce the interest charged on your mortgage.
However, offsetting doesn’t mean your accounts are debited to cover interest payments. Instead, the bank calculates interest daily based on your account balance, rather than monthly. This results in lower interest costs over time.
Essentially, the more funds you maintain in your linked accounts, the less interest you accumulate on your mortgage.
Advantages of Offset Mortgages
Offset mortgages are particularly beneficial in specific situations, such as when you have substantial savings. They offer certain advantages, including:
- Lower Interest Costs: They reduce the interest payable on your mortgage, often leading to greater net savings than the interest earned on a standard savings account.
- Tax Efficiency: Since savings used for offsetting don’t earn interest, they may lower your overall tax liability.
- Flexible Repayments: You can choose lower monthly payments for a longer term, or make larger payments to repay the mortgage faster and reduce interest costs.
- Multiple Account Linkage: Many offset mortgages allow linking multiple savings accounts, helping minimise the interest-bearing mortgage balance—ideal for those with diverse income sources.
- Access to Funds: They provide financial flexibility, letting you withdraw and repay savings without penalties. However, withdrawing funds increases the offset amount, leading to higher interest payments.
Paying off an offset mortgage
Offset mortgages offer more convenience with each payment, as frequent payments into the offset account allow you to repay your loan faster and reduce interest in the long run. This mortgage type is excellent for individuals with careers in sales or who freelance, as having monthly income fluctuations, commissions and bonuses are beneficial regarding how much your interest is lowered.
Offset mortgages can also be great for your savings, as you don’t eliminate access to your savings account while paying off your mortgage. Think of it this way: when you have a conventional mortgage, you lose access to your savings as you pay it off. When you have an offset mortgage, you can access your savings as you do in a regular account.
FAQs about offset mortgage in the UAE
Which banks offer offset mortgages in Dubai?
Several banks in the UAE offer offset mortgages including Standard Chartered Bank, Abu Dhabi Commercial Bank, RAK Bank and more.
If you want to know which bank offers the best offset mortgage or want to compare offset mortgages, mortgage experts of the banks can guide you through the process.
What are the other types of mortgages in the UAE?
There are different mortgage types based on the amounts and the property types, including fixed-rate mortgages, capped mortgages and more. Check out our in-depth guide to types of mortgages in Dubai to learn about how each works.
How can I get a home loan in Dubai?
To apply for a mortgage in Dubai, you need to match the eligibility criteria set by the bank (this can differ from bank to bank) and get a pre-approval for your loan.
This is where your knowledge about the types of mortgages and being able to choose the one that matches your needs plays a role. Learn about the steps to get Dubai property mortgage if that’s the route you’re interested in.
You can also find Shariah-compliant mortgages in Dubai.
Can you sell mortgaged property in the UAE?
Yes, you can sell a mortgaged property. To do so, certain steps must be taken once Form F (MOU with the terms of the sale) is signed. You will require a liability letter from the bank and an NOC from the developer.
You can learn about the process in detail in our guide to selling a mortgaged property in Dubai.
How can expats get a home loan in Dubai?
Expats can only buy freehold properties in Dubai and have certain restrictions when applying for a home loan. Check out our guide to expats and residents getting a mortgage in Dubai for a better understanding of the criteria for financing your dream home.
Are you looking to buy a house in Dubai? Understanding the rules and regulations behind the home-buying process is vital to making the right decisions.
