Owning your new home is an important step, and we’re here to help you make informed decisions about home finance. Let’s delve into the key aspects, terminology, and options associated with mortgages and home financing.
Home Finance in the UAE
Home Finance refers to the funds from a financial institution or bank to purchase a house. It typically involves interest or profit rates and specific payment terms. In the UAE, financial institutions might offer two main types of home finance: Conventional and Islamic.
Conventional home finance process
Step 1
The financial institution lends the client money to purchase a new home.
Step 2
Interest payments are charged on the loan amount in addition to the principal, spread over the loan repayment period.
Step 3
The client repays the loan amount along with the accrued interest. Once the full loan amount is repaid, the property is then released to the client.
Islamic home finance
Islamic Home Finance adheres to Shariah principles, which prohibit the charging of interest. Ijarah is one of the structure that is commonly being used in the United Arab Emirates for Islamic Home finance.
Ijarah Home Finance Process
Step 1
Ijarah, meaning leasing, involves the financial institution purchasing the house from the seller and leasing it to the client for an agreed period.
Step 2
Client will make monthly payments which consist of a contribution towards the property’s purchase price (principal) and rental payment (profit)
Step 3
At the lease’s end, the property is transferred to the client. The property is then sold to the client at a nominal price as agreed in the lease agreement.
- The client’s name is mentioned on the lease agreement as the ‘lessee.’ Lessee is the person leasing the asset provided by the lessor. In this case, lessee is the client and lessor is the financial institution.
Know more: https://sc.com/ae/stories/basics-of-banking
