What are the different types of commercial mortgages in Dubai?
While Dubai’s property market continues to boom for the third consecutive year, many businesses and residents have decided to call the city their next home or their next investment.
Mortgages have been on everyone’s roster, even when it comes purchasing their first commercial space.
Our in-house mortgage experts at Allsopp & Allsopp are here to help break down the different types of mortgages for commercial properties.
Owner-occupied commercial mortgages
Owner-occupied commercial mortgages are tailored for businesses that are intending to purchase property for their own use.
This type of mortgage is ideal for companies that want to own their premises, providing stability and potential property value appreciation.
Typically, the loan-to-value ratio for these mortgages range from 60% to 80%, with lower interest rates compared to investment commercial mortgages due to the reduced risk. This type of mortgage provides payment terms that can extend from 5 to 25 years, offering businesses a sustainable and predictable cost structure for their operations.
What are the benefits of owner-occupied mortgages?
- Stability in operating costs as you are owning the premises
- Potential for property value appreciation
- Owner-occupied loans often come with lower interest rates
Commercial investment mortgages
Commercial investment mortgages are for investors who want to purchase commercial properties to generate rental income or profit from resale.
These mortgages usually have a loan-to-value ratio ranging from 50% to 70% and have a higher interest rate than owner-occupied mortgages but offer higher yields.
Repayment terms for this mortgage typically span 5 to 20 years. Investors can benefit from passive income through rental income and potential capital gains as the property values appreciate. These factors make this a popular choice for those looking to build a diversified real estate portfolio.
What are the benefits of commercial investment mortgages?
- Opportunity to generate passive income through rental yields
- Potential for significant capital gains on property appreciation
- Higher rental incomes, as commercial properties rent for a higher value
Commercial refinancing mortgages
Commercial refinancing mortgages involves securing a new mortgage to pay off an existing one, often to take advantage of better terms, lower interest rates, or to release equity.
The loan-to-value ratio can be dependent on the new lender and the policies set by them. Refinancing can significantly improve cash flow by reducing monthly payments or accessing additional funds from the property's equity - this option is particularly useful for property owners looking to improve their financial strategies and leverage better mortgage conditions.
What are the benefits of a commercial refinance mortgage?
- Improved cash flow by securing better mortgage terms
- Access to additional funds by releasing old equity
Development finance mortgages
Development finance mortgages cater to property developers who are in need of funds to build or renovate commercial properties.
These mortgages can cover up to 80% of the project cost, although often faced with significantly higher interest rates due to the high risk.
For this mortgage, repayment terms are usually short-term, and are within the development period. This type of financing is for developers who require substantial upfront capital to bring their projects to fruition, which brings in the potential of significant value increases upon the project’s completion.
What are the benefits of a development finance mortgage?
- A rapid and flexible stream of financing
- Provides necessary funds to complete development projects
- Can significantly increase the property’s value upon completion
Bridge finance loans
Bridge loans are short-term financing solutions designed to bridge the gap between the purchase of a new property and the sale of an existing one, or until long-term financing is arranged.
These loans typically have a loan-to-value ratio ranging from 60% to 75% and higher interest rates due to their short-term nature.
Repayment terms generally range from 6 months to 3 years, with bridge loans providing quick access to funds, and offering flexibility to secure new property acquisitions without waiting for other transactions to complete, making them ideal for investors needing immediate financing.
What are the benefits of bridge finance loans?
- Quick access to funds
- Flexibility to secure a property purchase without waiting for the sale of another
Mezzanine financing
Mezzanine financing combines elements of debt and equity financing, giving lenders the option to convert to an equity interest if the borrower defaults.
This loan option often has a much higher funding level with higher interest rates due to the unsecured nature of the loan.
However, repayment terms can be flexible, and can often be tailored to the specific needs of the borrower. Mezzanine financing is particularly beneficial for large-scale projects requiring significant capital, providing a balance between debt and equity financing without heavily facing issues with ownership.
What are the benefits of mezzanine financing?
- Access to higher levels of funding
- Less dilution of ownership compared to equity financing
Got any questions about your commercial mortgage?
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