K|Wise · Glossary
Interest-Only Mortgage
A mortgage where the borrower pays only the interest each month, leaving the principal unchanged. Rare in the UAE and usually limited to short-term bridging.
In plain English
A mortgage where the borrower pays only the interest each month, leaving the principal unchanged. Rare in the UAE and usually limited to short-term bridging.
What Interest-Only Mortgage means in practice
On an interest-only mortgage the monthly payment covers the lender's interest charge and nothing more. The balance you owe at the end of the term is identical to the balance you started with.
The appeal is the lower monthly outlay; the cost is that no equity is built through repayment, and the full principal has to be settled some other way — by sale, refinance or lump sum.
How it works in the UAE
Interest-only structures are uncommon in the UAE residential market and are generally confined to short-term bridging or specific private-banking arrangements. Where offered, they usually run for a limited period before converting to a fully amortising schedule.
A worked example
AED 1,000,000 at 5% on an interest-only basis costs about AED 4,167 a month, against roughly AED 5,846 on a 25-year amortising loan — but after five years the interest-only borrower still owes the entire AED 1,000,000.
Terms that come up alongside Interest-Only Mortgage
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.
Read the definitionBuy-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 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