Finance & Mortgage · 6 min · 2026-10-23

Interest-Only Mortgage in the UAE: Rules and a Worked Example

Interest-only periods are allowed in the UAE only for investment properties, and for at most five years. Here is what that means for your balance and later payments.

The short answer

In the UAE, an interest-only mortgage (a loan with deferred principal repayment) is allowed only for investment properties, and the principal cannot be deferred for more than 5 years from the first drawdown. This comes from Article 3.6 of the CBUAE "Regulations Regarding Mortgage Loans". A home you live in must be repaid on a reducing balance basis from the start (Article 3.5). After the interest-only period, your full balance remains and must be repaid over the remaining term, so later payments are higher.

What the regulation says

Article 3.6: Interest-only period

"Mortgage loans with deferred principal repayment should only apply to investment loans. These loans should not allow for non-repayment of principal for longer than 5 years from date of first drawdown of the loan."

Article 3.5: Reducing balance

Other mortgages are repaid on a reducing balance basis (principal and interest together), at a frequency of at least quarterly, from salary or verifiable business or rental income. End-of-service benefits cannot be used.

Article 2.3: Affordability after the interest-only period

For loans with an interest-only first stage, the lender "must be satisfied that the borrower will be able to meet principal and interest payments arising at the end of that period". In other words, you are assessed on the higher payment that follows, not only on the interest-only amount.

Article 3.3: Maximum term

The overall tenor is capped at 25 years. An interest-only period sits inside that term, so it shortens the time left to repay the principal.

Worked example: AED 720,000 investment loan

Assumptions, all examples: expatriate investor; investment property valued at AED 1,200,000; loan of AED 720,000 (60% LTV, the maximum for an expatriate investment property under Article 3.2); example rate of 4.5% for the whole term; 25-year term.

Amounts in AED.

How the figures are calculated

• Interest-only payment: 720,000 × 4.5% / 12 = AED 2,700.
• Repayment loan: P·r / (1 − (1 + r)^−n) with P = 720,000, r = 0.045/12, n = 300 gives AED 4,002.
• Balance of the repayment loan after 60 payments: AED 632,577.
• After the interest-only period: the AED 720,000 balance repaid over 240 months gives AED 4,555 a month.

What the example shows

• Interest-only lowers the payment by about AED 1,300 a month for five years.
• The balance does not fall during that period: you still owe the full AED 720,000.
• The later payment is higher than on a standard loan, and total interest is higher.

The stress test with an interest-only period

Article 3.1 requires a stress test at 2 to 4 points above the rate. Combined with Article 2.3, a lender looks at the post-interest-only payment under a higher rate. At an example 6.5%, AED 720,000 over 20 years gives about AED 5,368 a month. For investment properties the lender also deducts at least two months' rent from the DBR calculation.

When investors consider interest-only

• To keep monthly outgoings lower while a property is being let.
• When a sale or a principal repayment from other verifiable funds is planned. The regulation does not let affordability rely on future price appreciation (Article 2.3), so the lender will still check you can pay principal and interest afterwards.

Whether a lender offers interest-only at all, and on what terms, is its own policy.

Planning the end of the interest-only period

The step-up from AED 2,700 to AED 4,555 in the example is the key risk to plan for. A few practical points:

• Put the date the interest-only period ends in your calendar from day one; it is at most 5 years after the first drawdown.
• Check whether partial principal payments are allowed during the period and at what cost, so you can reduce the balance before the step-up.
• Keep your total debts, including the later payment, within the 50% DBR limit (Article 3.1).
• If the property is let, remember that the lender deducts at least two months' rent when assessing it.

Early repayment and fees

If you plan to repay part of the principal during or after the interest-only period, check the pre-payment policy. Under Article 4, the maximum early repayment charges are the lender's actual cost of breaking a fixed rate and/or the fees set by Regulation No. 29/2011. See early repayment and refinancing.

FAQ

Can I get an interest-only mortgage on my own home?

No. Article 3.6 limits deferred principal repayment to investment loans.

Can the interest-only period be longer than 5 years?

No. The principal cannot be deferred for more than 5 years from the first drawdown.

Does interest-only change the maximum LTV?

No. The LTV caps in Article 3.2 apply: 60% for an expatriate investment property, 65% for a UAE National, 50% off plan.

Is interest-only suitable for off-plan?

The rules are the same: investment purpose, 5-year maximum, 50% off-plan cap. See the 50% off-plan rule and buy-to-let mortgages.

Compare both repayment profiles in the mortgage repayment calculator and read the investment property mortgage guide.

Calculators for this guide: Mortgage calculator Dubai & UAE · Dubai mortgage for non-residents · Off-plan calculator Dubai

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