Understanding the Difference between Mortgage vs Payment Plan

24/05/2022
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Understanding the Difference between Mortgage vs Payment Plan - Dacha

When it comes to purchasing real estate property, borrowers may be limited to what financial institutions can offer. Most of the time, financing options include a wide range of mortgage plans that suit the borrower's unique needs. 

However, mortgage plans can be tricky bearing in mind the time frame, interest rates and costs associated with each plan. For example, a 30-year fixed rate loan might have a lower interest rate than a 15-year fixed interest rate loan, but it will cost the borrower more money in the long run.

While a fixed-term loan plan may be ideal for the borrower who plans on holding the house for a longer period of time, it's recommended to shop around and compare mortgage plans. With that in mind, is there an alternative financing option for residential real estate purchasers?

Buying a Home with a Payment Plan 

A payment plan involves developers offering payment plans for real estate purchases. Developers may offer payment plans for a variety of reasons: from marketability to a need to compete with other developers in the same area/precinct. Regardless, there are certain factors that make payment plans beneficial for both the developer and the borrower.

For the developer, payment plans help increase the purchase of homes thereby increasing the developer's overall cash flow. The borrower can take advantage of a low down payment with a payment plan. Borrowers who opt for a payment plan can purchase a property with a significantly shorter term, ranging between two to ten years depending on the developer, property, price, and more. 

While that sounds appealing, a shorter payment term doesn't necessarily make it more manageable. For instance, most payment plans require homebuyers to make a 10 percent down payment, with the following 10 percent given within the next year, while the rest are divided into monthly installments. 

Not to mention, prices on real estate properties following a payment plan may be higher compared to mortgage plans due to the shorter time frame. 

What Makes a Mortgage Plan Different?

When it comes to purchasing a home, mortgage plans can be tailored to suit the needs of the borrower. For example, a borrower can choose a mortgage plan that offers a lower interest rate, which could potentially help their home equity in the long run.

Mortgage plans can also include features that help consumers get the most out of their home purchase. For example, mortgage plans may include the ability to cancel or renew a loan if your financial situation changes. 

Of course, the biggest difference is the time frame, wherein mortgage plans typically range between 15 to 30 years. While it's true that you will need to make a 20 percent down payment if you're an expatriate, the rest of the 80 percent can already be financed by the financial institution of your choice.

Alternatively, you can lower the down payment to 15 percent if you're a UAE national, so the rest of the 85 percent will be borrowed from the bank or your lender of choice. Not to mention, mortgage payments can be given to any type of borrower, so it is not limited to residential real estate buyers.

The Bottom Line: Mortgage or Payment Plan: Which Is the Right Choice for You?

Both mortgage plans and payment plans have their pros and cons. The best thing to do is to shop around and compare each option. There are also other financing options like cash help that may be a better alternative to either mortgage plans or payment plans.

Regardless, buying a home is an exciting experience and we are glad to help you with your mortgage or payment plan!

Do You Need Help with Your Real Estate Endeavors?

Buying or selling property in Dubai can be tricky, but you don’t have to go through a lengthy trial-and-error process to navigate the complex real estate market. Dacha Real Estate can take the guesswork out of your hunt for the most lucrative real estate available with our expert guidance. 

We’re a top property agency in Dubai that strives to provide world-class services to our clients around the world, so if you’re looking for high-quality real estate sales and leases, give us a call. We’re more than happy to help you find the perfect property in Dubai for the best price! 

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