Repayment period in the property sector

The amortisation period is an essential term that refers to the period of time in which a borrower has to repay their debt to a bank or other financing body. Especially in the mortgage and financing sector of property in Dubai, this period is crucial as it has a significant impact on the buyer’s financial flexibility and planning.

What is a repayment period?

A repayment period is the period in which the borrower makes the agreed instalment payments. These payments consist of interest and the repayment of the original loan amount (principal debt). The amortisation period can vary depending on the type of loan and is usually between 10 and 30 years.

How does the amortisation period affect your finances?

• Monthly instalments: A longer repayment period leads to lower monthly instalments, but increases the total interest payable.
• Total expenditure: With a shorter repayment period, monthly instalments are higher, but the total cost of interest decreases.
• Financial flexibility: A longer amortisation period can offer more financial flexibility, especially in the early stages of ownership.

Factors that influence the amortisation period

Several factors play a role in determining the amortisation period:

• Interest rate: high interest rates may lead borrowers to opt for a longer repayment period in order to reduce monthly instalments.
• Financial situation: The borrower’s current financial situation is decisive in determining a resilient repayment period.
• Property market: The general market situation in Dubai also influences the choice of repayment period.

Advantages and disadvantages of a long amortisation period

A longer amortisation period has its advantages and disadvantages:

• Advantages
  • Lower monthly instalments
  • More financial leeway for other expenses
• Disadvantages
  • Higher total costs due to additional interest
  • Longer commitment to the loan agreement

For whom does a long amortisation period make sense?

A longer amortisation period can be particularly useful for young buyers or people with lower incomes who want to keep their monthly expenses under control. However, buyers in Dubai should also consider the option of a shorter repayment period in order to minimise interest costs.

Illustrative example on the topic: amortisation period

Imagine Anna and Peter want to buy a flat in Dubai. They decide on a property in Dubai Marina at a price of 1 million dirhams and take out a mortgage loan for it. They may decide to set the repayment period at 25 years, which means they will have to pay around 4,300 dirhams per month.

However, if they opt for a shorter period of 15 years, the monthly instalment would rise to around 7,800 dirhams, which represents a greater financial burden but also reduces interest expenses in the long term. Their decision depends on their current financial situation and their future plans.

Conclusion

The amortisation period is a crucial element when planning a property purchase in Dubai. It is important to choose the appropriate period that suits both your financial capabilities and long-term goals. Many buyers choose to seek professional advice from real estate agents or financial advisors to determine the best amortisation period and obtain optimal financing terms.