How to calculate (determine) your mortgage payment

Your monthly mortgage payment comes from three numbers: how much you borrow, the yearly rate, and the number of months. Here is the formula, worked through once by hand.

Monthly payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the loan, r the monthly rate (yearly rate ÷ 12 ÷ 100) and n the number of months.

Not a valid document. Estimate for information only — not financial advice, not an offer of credit and not a bank document. Errors are possible. Only your bank's or finance company's official offer letter, contract and statements are binding.

Worked example

A AED 2,000,000 home with 20% down → loan P = AED 1,600,000. Rate 3.99% a year → r = 3.99 ÷ 12 ÷ 100 = 0.003325. 25 years → n = 300 months.
(1 + r)³⁰⁰ = 2.7070.
Payment = AED 1,600,000 × 0.003325 × 2.7070 ÷ (2.7070 − 1) = AED 8,436.56 a month.
Over 25 years at this rate you would pay AED 930,967 in interest.

Where the money goes in month one

Interest is charged only on what you still owe (the reducing balance, which the Central Bank requires for mortgages). Month one: interest = AED 1,600,000 × 0.003325 = AED 5,320; the other AED 3,117 pays down the loan. Each month the balance is a little smaller, so more of the same payment goes to the loan and less to interest.

Shorter term, bigger payment, much less interest

Same loan and rate (AED 1,600,000 at 3.99%), only the term changes.

Why your bank's figure may be slightly different

• The rate changes. Most UAE mortgages are fixed for a few years, then follow EIBOR plus a margin, and the payment is recalculated at each reset. See What is EIBOR?.
• Days, not months. Banks often count interest by the actual days in each month, so the schedule can differ by a few dirhams.
• Fees and insurance. Life and property insurance or fees added to the loan raise the payment. The bank must show the total cost over the loan's life.

How to determine your mortgage payment in three steps

1. Fix the loan amount. Price minus your down payment: the Central Bank sets the minimum deposit (20% for an expat's first home up to AED 5 million), so the loan can be at most the rest.
2. Find the real rate. Use the fixed rate for the fixed years, then EIBOR plus the margin from your offer letter. If you are only given a flat rate, convert it first with the flat rate converter; the formula needs the reducing rate.
3. Apply the formula with the number of months (at most 300 in the UAE), or let the calculator do it. Then test the result against your income: all your instalments together may not exceed 50% of your salary, and the bank will check the payment at a rate 2 to 4 points higher.

Skip the maths

The mortgage calculator UAE does all of this, including the reset after the fixed period and the Central Bank limits. For the cash you need on the day, use costs of buying a home.