How to Calculate a Mortgage Payment in Dubai

Frequently, a property owner who has borrowed funds to purchase their property pays a monthly payment to a mortgage lender. Though it’s called a monthly mortgage payment, it includes more than merely the cost of repaying their loan. For most, in addition to the capital amount and interest, sometimes mortgage insurance and property taxes are included.

Most banks offer online mortgage payment calculators, which is the easiest way to calculate a mortgage payment, but you can also do it by hand. In both cases, you’ll need the following information:

Capital Amount

The amount required, or the initial amount of the loan needed to purchase your property, is referred to as the Capital Amount.

For example, someone with AED 200,000 who wishes to purchase an AED 800,000 apartment has a 25% deposit in hand. They will, however, need to borrow the balance or AED 600,000 to complete the purchase. The Capital Amount, in this case, is AED 600,000.

Interest Rate

The interest rate is the fee a mortgage lender charges you to borrow money, expressed as a percentage. Typically, mortgage lenders advertise an annual interest rate for mortgages. If you want to calculate the monthly mortgage payment by hand, you’ll need to determine the monthly interest rate.

For example, if the annual interest rate is 2%, you’ll need to divide by 12, the number of months in a year. In this case:

2%/12 = 0.1666

The monthly interest rate, in this case, would be .17%. Loan interest is included in a monthly mortgage payment.

APR

APR stands for Annual Percentage Rate, which is how much it costs for you to borrow money. There are two types of APR, Fixed and Variable, and it’s important to ask a mortgage lender type of APR used on your loan.

A Fixed APR means the Annual Percentage Rate will not change throughout the loan term. A Variable APR means the Annual Percentage Rate is tied to an index interest rate, such as the Emirates Interbank Offered Rate (EIBOR). If the EIBOR increases, so would a Variable APR, and so would your payment. Conversely, if the EIBOR decreases, your payment would too.

Term

The term of a mortgage refers to the amount of time – usually 15, 20, or 25 years – you are given to repay the loan.

Calculating Monthly Cost

For those of you who are still waiting for the day that you will use math in real life, here’s your chance. To calculate the monthly cost by hand, using the information above, follow this equation:

M = P [ I(1 + I)^N ] / [ (1 + I)^N – 1]

P = Capital Amount

I = Monthly interest rate

N = the Number of months required to repay the loan, which is the Term multiplied by 12 months. For example, if a mortgage term is 5 years, then 5 x 12 months = a Term of 60 months.

Of course, it’s faster to access an online mortgage calculator, and in some cases a detailed reporting of expected payments can be emailed directly to you.

Remember, the more you understand about mortgage payments, the more informed and prepared you’ll be when visiting a mortgage lender.