K|Wise · Glossary
Amortisation
The gradual repayment of a mortgage loan through scheduled monthly instalments of principal and interest. In the early years more of each payment goes to interest; in the later years more goes to principal.
In plain English
The gradual repayment of a mortgage loan through scheduled monthly instalments of principal and interest. In the early years more of each payment goes to interest; in the later years more goes to principal.
What Amortisation means in practice
Every mortgage instalment you pay is split in two: one slice covers the interest the lender has charged since your last payment, and whatever is left reduces the amount you actually owe. Because interest is charged on the outstanding balance, and that balance is at its highest on day one, the earliest payments are dominated by interest.
As the balance falls, the interest slice shrinks and the principal slice grows — even though the instalment itself has not changed. This shifting split is what an amortisation schedule sets out, row by row, for the full life of the loan.
How it works in the UAE
UAE mortgages are almost always fully amortising, meaning the balance reaches zero by the end of the term with no lump sum left outstanding. Terms run up to 25 years for residents and 20 years for non-residents, and because the early years are interest-heavy, borrowers who expect to sell or refinance within three to five years will have repaid far less principal than they assume.
A worked example
On a AED 1,500,000 loan over 25 years at 4.25%, the instalment is roughly AED 8,130 a month. In the very first payment about AED 5,313 is interest and only about AED 2,817 reduces the balance — so after a full year of payments you still owe close to AED 1,465,000.
Terms that come up alongside Amortisation
Buy-to-Let Mortgage
A mortgage used to purchase a property that will be rented out rather than occupied by the borrower. Lenders assess the deal on projected rental income alongside the borrower's personal income.
Read the definitionCap
A contractual maximum on how much your variable mortgage rate can rise over a defined period. A common UAE structure caps the rate at 5.99% for the first 3 years.
Read the definitionConveyancing
The legal process of transferring property ownership from seller to buyer, including title checks, NOC issuance, mortgage registration, and the final Land Department transfer.
Read the definitionDBR (Debt Burden Ratio)
The total of your monthly debt commitments — mortgage, car loan, credit card minimums, personal loans — expressed as a percentage of your net monthly income. UAE Central Bank caps the DBR at 50%.
Read the definitionDeposit
The portion of the purchase price you pay from your own funds. The UAE Central Bank requires at minimum 20% for first-time resident buyers, 25% for second properties, and 25% to 50% for non-residents.
Read the definitionDrawdown
The point at which the lender releases the mortgage funds — typically paid directly to the seller at the Land Department on transfer day.
Read the definition