Interest-only mortgage calculator UAE: payments and total cost
- On AED 1M at 4.25%, an interest-only payment is AED 3,542/month versus AED 5,418 on a full repayment basis, a saving of AED 1,876/month during the interest-only period.
- When a 5-year interest-only period on AED 1M ends and the loan switches to 20-year repayment at 4.25%, the monthly payment jumps from AED 3,542 to AED 6,193 (source: PMT formula).
- Total interest on a 5-year interest-only then 20-year repayment loan of AED 1M at 4.25% is approximately AED 838,800, versus AED 625,400 on a straight 25-year repayment mortgage.
On an interest-only UAE mortgage, you pay only the interest each month and the principal stays at the original loan amount. At 4.25%, the interest-only payment on AED 1M is AED 3,542/month, compared to AED 5,418 on a full repayment basis. The lower payment comes at a cost: total interest over the loan life is higher, and the payment jumps sharply when the interest-only period ends (source: PMT formula, bank rate sheets, June 2026).
TL;DR: the key figures
- AED 1M at 4.25%: interest-only payment AED 3,542/month vs AED 5,418 repayment.
- 5-year interest-only on AED 1M, then 20-year repayment at 4.25%: payment jumps to AED 6,193/month after year 5.
- Total interest on the hybrid structure: ~AED 838,800, versus ~AED 625,400 on straight 25-year repayment.
- Interest-only periods are available in the UAE but are not the standard product. Most residential UAE mortgages are fully amortising.
- Some banks offer interest-only phases for buy-to-let properties, typically 2 to 5 years.
How interest-only mortgage payments are calculated
The interest-only calculation is straightforward: multiply the outstanding loan balance by the annual interest rate and divide by 12.
For a AED 1M loan at 4.25% per year:
Interest-only monthly payment = AED 1,000,000 × 0.0425 ÷ 12 = AED 3,542
No principal is repaid during the interest-only phase. The balance stays at AED 1M. When the interest-only period ends, the bank recalculates the payment using the PMT formula for the remaining term. The calculation is the same as for a fresh mortgage: the bank amortises the full original balance over the remaining years.
Interest-only payments by loan size at UAE bank rates (June 2026)
Source: calculated as (loan amount × annual rate) / 12. Rates represent the range available from UAE banks in June 2026 (source: bank rate sheets, June 2026).
| Loan amount | Interest-only at 3.78% | Interest-only at 4.25% | Interest-only at 4.99% |
|---|---|---|---|
| AED 500,000 | ~AED 1,575 | ~AED 1,771 | ~AED 2,079 |
| AED 750,000 | ~AED 2,362 | ~AED 2,656 | ~AED 3,119 |
| AED 1,000,000 | ~AED 3,150 | ~AED 3,542 | ~AED 4,158 |
| AED 1,500,000 | ~AED 4,725 | ~AED 5,313 | ~AED 6,238 |
| AED 2,000,000 | ~AED 6,300 | ~AED 7,083 | ~AED 8,317 |
| AED 2,500,000 | ~AED 7,875 | ~AED 8,854 | ~AED 10,396 |
Source: (loan amount × annual rate) / 12. Figures rounded to nearest AED. No principal reduction during interest-only period.
What happens when the interest-only period ends
When the interest-only period finishes, the bank converts the loan to a full repayment basis. The remaining balance (still the full original amount, since no principal has been repaid) is now amortised over the remaining years. This creates a payment shock for borrowers who are not prepared for it.
| Loan: AED 1M at 4.25% | Monthly payment | Change at switch |
|---|---|---|
| Interest-only phase (years 1-5) | AED 3,542 | Base |
| Repayment phase (years 6-25, 20 yrs remaining) | AED 6,193 | +AED 2,651/month |
| Alternative: straight 25-yr repayment from day one | AED 5,418 | N/A |
The jump from AED 3,542 to AED 6,193 is a 75% increase in monthly payment in one step. For a buyer on a salary-stretched budget, this can become a problem if incomes do not rise proportionally over the interest-only period. Check your future payment capacity via the eligibility wizard before committing to a structure with a steep step-up.
Total interest cost: interest-only vs full repayment
The table below compares total interest paid under three structures for a AED 1M loan at 4.25% (source: PMT formula).
| Structure | Monthly payment | Total interest (25 yrs) | Extra vs straight repayment |
|---|---|---|---|
| Straight 25-yr repayment | AED 5,418 | ~AED 625,400 | Base |
| 5 yrs IO + 20 yrs repayment | AED 3,542 then AED 6,193 | ~AED 838,800 | +~AED 213,400 |
| 10 yrs IO + 15 yrs repayment | AED 3,542 then AED 7,520 | ~AED 1,074,600 | +~AED 449,200 |
Source: PMT formula. Interest-only total = (AED 3,542 × 12 × IO years) + PMT repayment total for remaining term. Figures rounded to nearest AED 100. The longer the interest-only phase, the more expensive the loan becomes overall.
When interest-only can make sense in the UAE
Despite the higher total cost, there are situations where an interest-only phase is worth considering:
- Off-plan properties under construction: some developers and banks offer interest-only during the build phase, matching the payment to the period when the buyer has no rental income or benefit from the property.
- Buy-to-let investors with strong rental yields: if rental income covers the interest-only payment and the investor expects to sell or refinance before the repayment phase, the structure can work. See buy-to-let yield calculator for the numbers.
- Short-term bridge scenarios: borrowers expecting a lump-sum payment (bonus, end-of-service benefit, property sale proceeds) within a few years sometimes prefer interest-only for that period. Most UAE banks cap the interest-only phase at 5 years for this reason.
In all cases, borrowers must plan for the repayment step-up. The payment at the end of the interest-only phase is always higher than the straight repayment payment would have been from day one, because the balance has not reduced at all.
Interest-only vs repayment: which is available in the UAE?
Most UAE residential mortgages for primary residences are fully amortising repayment loans. Interest-only phases are more common on:
- Off-plan developer finance during the construction period.
- Buy-to-let investment property loans from some banks.
- Short-term bridging products offered by a limited number of UAE banks.
If a bank does offer an interest-only option, it typically comes with a higher rate than the standard repayment product, partially offsetting the lower early payment. Always compare the total 25-year cost, not just the interest-only payment, before choosing. Compare current offers on the rates page.
“Is an interest-only mortgage a good idea in Dubai if my rent covers the payment?”
It depends on your exit plan. If the rent covers the interest-only payment, you are essentially holding the asset at low carrying cost while hoping for capital growth. But you are also building zero equity through your repayments (only through price appreciation, if any). When the interest-only period ends, the payment jumps steeply. If you have not sold or refinanced by then, you either need to afford the higher payment or face a forced sale.
The better question to ask yourself: what is my plan at the end of the interest-only period? If the answer is “sell for a profit”, model the scenario where capital growth is flat or negative. If the answer is “refinance”, check that you will still meet affordability criteria on a full repayment basis with whatever your balance and salary look like then. Our calculator lets you run both scenarios side by side.
Bottom line
An interest-only UAE mortgage reduces early monthly payments significantly: AED 3,542 versus AED 5,418 per month on AED 1M at 4.25%. But the balance does not reduce, total interest is higher, and the payment jumps sharply when the interest-only phase ends. For most UAE residential borrowers, a full repayment mortgage is the appropriate structure. Interest-only phases are worth considering only for specific scenarios: off-plan construction periods, buy-to-let investment with strong yield, or short-term bridge positions with a clear exit plan. Run your specific numbers on the mortgage calculator.
Frequently asked questions
Are interest-only mortgages available in the UAE?
Interest-only periods are available on some UAE mortgages, typically for 1 to 5 years at the start of the loan. Full interest-only mortgages with no repayment component are not standard in the UAE. Most UAE residential mortgages are fully amortising repayment loans.
What is the monthly payment on a AED 1M interest-only mortgage in the UAE?
At 4.25%, a AED 1M interest-only payment is AED 3,542/month. At 3.78%, it is AED 3,150/month. These are calculated as (loan amount × annual rate) / 12. The principal is unchanged until the borrower switches to repayment.
What happens to UAE mortgage payments when the interest-only period ends?
When a UAE mortgage switches from interest-only to repayment, the full original principal must be repaid over the remaining term. On AED 1M with a 5-year interest-only phase, the 20-year repayment tail at 4.25% requires AED 6,193/month, a jump of AED 2,651 from the interest-only payment of AED 3,542/month.
Is an interest-only mortgage cheaper overall in the UAE?
No. An interest-only phase results in a higher total interest cost over the loan life. On AED 1M at 4.25% with a 5-year interest-only phase followed by 20 years repayment, total interest is approximately AED 838,800, compared to AED 625,400 on a straight 25-year repayment basis (source: PMT formula).
Can expats get an interest-only mortgage in the UAE?
Some UAE banks offer interest-only periods to expats, particularly for buy-to-let investment properties. The product availability and terms vary by bank. Most standard residential mortgages for expats are fully amortising. For investment properties, banks may offer 2 to 5 year interest-only periods at a slightly higher rate.
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Compare repayment vs interest-only now
Run both structures on the live calculator to see the monthly payment difference and total interest cost over your full term.