The Difference Between Mortgage vs Payment Plan

• Mortgage vs Payment Plans Overview
• Key Terms and Conditions
• Mortgage Application Process 
• Payment Plan Process
• FAQs

Investing in a property is a big decision that requires substantial capital. Property buyers and investors should weigh all the available real estate and financing options to make an informed choice. While bank mortgage loans and payment plans make the property buying process convenient, there might be underlying terms and conditions. This is why it’s important to know the difference between the two options to pick the right one. Here we’ll compare mortgage vs payment plan and find out how they facilitate real estate investors.

Understanding the Difference Between Bank Mortgage vs Payment Plans

To compare payment plan vs mortgage, let’s learn more about each of these terms first.

Meaning of Mortgage vs Payment Plan

When it comes to home financing, a mortgage is a popular option. Banks offer different types of mortgages to Dubai home buyers. It is a type of loan in which the property itself is treated as collateral for the borrowed loan amount.

On the other hand, payment plans are offered to real estate investors by project developers. By opting for a certain payment plan, the buyer agrees to pay the property price in instalments over time. There are different types of off-plan payment options. This emphasises the importance of carefully comprehending the available payment plan.

Mortgage or Payment Plans: Which Is More Convenient?

Let’s gauge the difference between mortgage and payment plans based on their conditions and payment terms.

Mortgage 

• Payment Tenure: 5 to 25 Years
• Payee: Bank 
• Processing Fee: Yes, 2%
• Fluctuating Payment Rates: Change in Interest Rate Every 5 Years
• Visa Required: Yes, Residency Visa
• Lowest Cap for Down Payment: 20%

Besides conventional options, many banks offer Islamic mortgages in the UAE.

Payment Plan

• Payment Tenure: 3 to 10 Years
• Payee: Project Developer
• Processing Fee: No
• Fluctuating Payment Rates: Fixed Instalment
• Visa Required: No
• Lowest Cap for Down Payment: 20%

More About Applying for a Mortgage or Home Loan

When comparing payment plan vs mortgage, it’s important to have a basic know-how of application processes for both. According to the mortgage or home loan process in the UAE, banks have set certain criteria for mortgage applicants. These include minimum salary requirements, employment status and duration as well as documentation like residency visa or Emirates ID. 

However, if a person knows about the salary requirement to buy property in Dubai and other emirates, the process would be easier. Once all the documents are submitted, the bank then reviews and verifies the documents. 

After the necessary approvals from the mortgagee bank, the next step is to get the mortgage registered with DLD. This step is essential for those buying property in Dubai. It’s important to fulfil all the necessary document requirements listed on DLD’s website. Furthermore, a fee equivalent to 0.25% of the total mortgage value and other associated costs are levied. 

For the title deed issuance, the mortgage registration applicant also has to pay AED 250. Moreover, the fee structure also contains AED 4000+VAT and AED 5000+VAT as service partner and initial sale registration fees. These are some of the key factors that will help you decide whether to go with mortgage or payment plans. Let’s learn more about the process of the latter financial option. 

More About the Process of Payment Plan

To understand the payment plan process, it’s important to learn about the technicalities of buying an off-plan property in the UAE. 

The process of payment plan is usually divided into two parts. In the first part, the investors pay the due amount in instalments during the construction phase. Moreover, in the second part, the payment is made post-handover of the project. 

Off-plan investors should know about the legal aspects of property handover in the UAE. The information on various scenarios and technicalities will help avoid any potential risks. 

The division of the off-plan payment plan is usually 40/60. This means the investors have to pay 40% including the 20% down payment until the handover. After receiving the keys, the rest 60% of the payment is made as monthly or quarterly instalments. This division of payment is at the discretion of the developers and governing authorities. 

In some cases, the project completion faces delays that cause inconvenience to buyers and investors. However, keeping a close check on the project status will help in dealing with delayed off-plan projects effectively.

FAQ

What is the meaning of a mortgage plan?

In real estate, a mortgage is an agreement between a mortgagee and a property investor. If the latter fails to fulfil the payment terms, the lender can rightfully confiscate the property. This is why it’s important to be aware of the structure of mortgages in Dubai and other emirates.

Is a mortgage the same as an instalment?

No. A mortgage is a term used for a loan granted by the mortgagee against a collateral. Conversely, an instalment is the due amount paid in regular intervals for either a mortgage or payment plan. 

What is the difference between a fixed-rate and variable-rate mortgage?

The difference between a fixed-rate and variable-rate mortgage is pretty simple. A fixed-rate mortgage has uniform and stable interest rates. On the other hand, variable-rate mortgages are offered with fluctuating interest rates. This causes the instalment amount to go up and down.

What is a payment plan in real estate?

Payment plans are offered for off-plan and under-construction projects in the UAE. These payment options are offered by the developers of the project. 

Payment plans are convenient, but any changes in them can be risky for investors and property buyers. That said, with adequate know-how, investors can easily avoid such risks of buying off-plan property in Dubai. Similar will be the case for other emirates.

This is everything you need to know about mortgage vs payment plans in real estate. Competing the two financial options side by side will help you decide wisely. Investors can also compare off-plan vs ready properties to find out which option is right for them.

The real estate landscape across the Emirates is extremely diverse with myriad options available. Check out these properties for sale in the UAE to explore the varied choices investors can pick from. 

For more information on the difference between mortgage vs payment plan, keep reading dubizzle’s real estate blog.