Maximise savings and reduce interest with offset mortgages
Taking a mortgage is a necessity for quite a few property buyers looking to get their dream homes. Whether you’re a first-time homebuyer or searching for your next home, knowing the essentials of mortgages can be helpful when making a big life decision. There are a few types of mortgages to note, one of which is offset mortgages. These slightly conventional mortgages combine one or more savings accounts with your home loan. Let’s dive deep into understanding how offset mortgages work and how they are beneficial in the long run.
What is an offset mortgage?
The loan is separate from your day-to-day finances when you take a conventional mortgage. You pay your loan off each month, along with the interest accumulated over time – after which, eventually, the mortgage is repaid. The amount paid each month is the same if you’re on a fixed mortgage.
However, offset mortgages combine your home mortgage account with your current account into one transactional account. This could be along with your current account, credit card and savings accounts. This way, the total balance of your linked account(s) is used to offset the interest due on your monthly mortgage.
In this case, offsetting does not mean that your linked accounts will be automatically debited for the amount of interest payable. Instead, it helps the bank calculate your interest on a daily basis instead of monthly, depending on the balance you maintain in these accounts. So, with offset mortgages, you pay a lower interest rate in the long run.
How does this work, you might ask? Offset home loan interest is calculated daily based on the amount in your account. This means the more money you have in your account, the less interest you have accrued.
Interest in an Offset Mortgage
To put it simply, conventional mortgages have interest based on the balance of the loan amount. In contrast, interest on offset mortgages is calculated based on the money in your account every day. This leads to higher savings on interest.
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.
To summarise, the higher the balance in your offset account and the longer the loan period, the lesser interest you’ll pay in the long run. Taking out an offset mortgage can also help you pay your loan off faster.
FAQs about offset mortgage in the UAE
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 mortgage 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.
Can you sell mortgaged property in the UAE?
Yes, you can sell a mortgaged property. To do so, some steps must be followed 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 better insights on 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. Follow MyBayut to discover more essentials of the UAE real estate market.
