Home Loan Vs Loan Against Property in UAE

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Home is where your heart is. Years of preparation are needed, in addition to a sizable portion of the money, to complete a venture like purchasing a home. This is why home loans in the UAE can be of great assistance. Home loans in UAE allow you to purchase your dream home without renouncing other expenses in your life, saving you from having to spend all of your earnings on one item. 

It is often perplexing for a common man to understand all the technical details of a loan. Moreover, it is a herculean task to go over various home and mortgage loans in the UAE separately. You will be glad to know that we have all you need to know about numerous loans against property and home loans on the Policybazaar UAE website. You can compare the schemes and apply for the most convenient loan through our website.

Let's go over everything you need to know about loans against property, home loans, interest rates, and loan disbursement in the United Arab Emirates.

Difference Between Home Loan and Mortgage Loan

A home loan is typically obtained to purchase a house, a plot of land, a flat, an apartment, etc. On the other hand, loans against property enable borrowers to meet their business and personal obligations by mortgaging their property. 

Loans secured by real estate or mortgages may be used for a variety of purposes including business expansion, family marriage, financing for medical care, trips, and funding for children's further education, among other things. 

Let’s focus on both types of loans in detail -

1. Home loan

A home loan is a loan that you wish to apply for before buying a house. For instance, you want to buy an apartment in Dubai. However, the value of the property is too high to buy off with a single transaction. You need a loan from a bank or a financial institution to buy the house. This is called a home loan.

Home loans are considered unsecured loans which you obtain to buy houses and other types of real estate. Since the loan is "unsecured," you are not required to provide collateral or a security deposit (in terms of assets as a mortgage) for it. Instead, the asset you purchase with the money from the house loan serves as the security in this situation.

This point is crucial because it indicates that the Bank has the right to croak your home that was purchased with the loan if you are unable to pay back the loan balance within the predetermined time frame.  

2. Loan against Property

Technically speaking, a mortgage is a secured debt. You must use a property you possess as security to obtain a loan against the property. Therefore, the property you held as collateral is confiscated if you, as the borrower, are unable to pay the whole mortgage balance within the predetermined duration specified in the agreement.

The objective of procuring a loan is another factor that sets a mortgage loan apart from a home loan. Only new homes can be bought or built using the money from a home loan. Mortgage loans, however, can be utilized for any legitimate purpose as per your needs. In comparison to home loans, mortgage loans often offer smaller loan amounts. You can typically borrow up to 60% or 70% of the value of the property as a mortgage loan.

Home Loan vs Loan Against property

Both home and mortgage loans can be divided into several categories in terms of their purposes. The common variations are discussed below.

  • Non-residential mortgage loan: UAE non-residents may apply for this specific loan against property. This type of mortgage can be chosen by those who reside in the UAE on visas but are not UAE residents.
  • Residential mortgage loan: Residential home loans are used to purchase or build a residence in the UAE. This implies that you are not permitted to use this property for any commercial endeavours, including renting it out.
  • Variable rate mortgage Loan: In the UAE, interest rates on a variable rate loan fluctuate with the market. Your home loan's interest will go up if the basic interest rate increases. Similar to this, you might be able to receive some of the cheapest property loan interest rates in the UAE if the basic mortgage loan rates decline.
  • Fixed rate mortgage loan: A fixed-rate mortgage has a fixed interest rate, which means that it does not fluctuate over time. This sort of home loan or mortgage loan is common in the UAE. The loan's initial principal is used to calculate interest.
  • Reducing rate mortgage loan: In a mortgage with a reducing interest rate, the interest is calculated on the loan's outstanding balance rather than the initial principal. This implies that every time you repay a loan instalment, your interest amount decreases.

The key differences between a home loan and a loan against property are shown in the table below.

Category Home loan Loan against property
Purpose Used to purchase a home, a plot, or an under-construction property Used for either personal or business purposes
Processing fee Usually around 1% of the loan amount + applicable taxes Usually around 1% of the loan amount + applicable taxes
Tenure Up to 25 years Up to 25 years

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Interest Rates of Home Loan and Loan Against Property

If you are wondering about the interest rates of a home loan and loan against property, we have information from all the leading banks for you. The rate varies from institution to institution. Therefore, it is always handy to have an insight into flat rates and reducing rates of a loan.

Please refer to the table below for a clear picture:

Name of the bank Name of the scheme Flat rate on a loan against property Reducing rate on a loan against property
ADIB Home loans for UAE nationals 2.06% 3.75%
Home loans for UAE expatriates 2.06% 3.75%

Mortgage loan for salaried employees 2.18% 3.54%
Mortgage loan for self-employed individuals 2.18% 3.54%
Emirates Islamic Bank Home finance – Bina’s for UAE nationals 1.75% 3.49%
Home finance – Manzili 1.92% 3.49%
Emirates NBD Home loans for UAE nationals 3.04% 5.75%
Home loans for UAE expatriates  3.04% 5.75%
FAB Islamic mortgage loan 2.75% 3.50%
Mortgage loan 2.75% 3.50%
Mortgage loan for small buildings  6.75% -
HSBC Fixed interest rate home loan 3.59% -
New home loan 1.96% 3.59%
Mashreq Bank Home loan 2.99% -
RAKBANK Mortgage home loan 2.09% 3.99%
Home in one 1.83% 3.49%
Standard Chartered  MortgageOne 1.95% 3.53%

A Comparative Analysis of Home Loan and Loan Against Property

Let us take some of the most significant parameters into the account and compare a home loan against a mortgage loan. This comparative analysis will let you understand the basics of home loan vs loan against property. 

  1. Purpose: Home loans can be used for a variety of things, including purchasing or leasing a house, a plot of land, a construction project, etc. Borrowers may employ loans against property for both personal and business purposes, and they are approved based on the value of the existing property. 
  2. Rate of interest: In comparison to a loan against property, a home loan has a lower interest rate. Given the likelihood of default, loans secured by real estate are provided at slightly higher interest rates.

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Benefits of Home Loan and Loan Against Property

Both home loans and loans against properties have their benefits. If you are looking to buy a house, you will apply for a home loan. However, if you need some quick money to cover an expense, you may apply for a mortgage loan.

Let us see the benefits of both in a tabular form:

Home loan Loan against property
You can buy your dream house and own the asset You can avail yourself some quick cash in exchange for a property you already own
You can enjoy tax benefits against a home loan Loans against property often come with a flexible repayment period 
You need not pay anything above the down payment which you and the bank agrees upon  You can have funds immediately to bear the emergency expenses 
You can enjoy reducing the rate of interest on each installment  The loan is approved quickly after the property is inspected and a valuation is estimated
You will end up owning an asset after the tenure of repayment is over Many banks offer an easy balance transfer facility on loan against property 

You can go through the best home loans and loans against property in the UAE on our website. Policybazaar UAE is the ideal one-stop online solution for all your queries related to loans. Moreover, you can apply for a loan directly through our portal from the comfort of your home. You can pay installments and complete other transactions associated with your loan through us. Visit our website and browse through numerous loans offered by the top financial institutions in the country.

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