Short Term vs Long Term Home Loan: Which One is Better?

Choosing between short term mortgage loans and long term home loans in the UAE is a crucial decision that depends on individual financial goals and circumstances. Each option has distinct benefits and drawbacks, influencing the total cost of borrowing, financial planning, and more. Understanding how these factors align with your financial situation will help you make the right choice.

So, short term vs long term mortgage loan- which one should you choose?

Top Home Loan Plans in UAE

Factors Determining Short Term Home Loan and Long Term Home Loans

The top two aspects that affect your home loan tenure are:

Monthly Repayments

The mortgage term directly impacts your monthly instalment amount. The longer the tenure, the less the monthly instalment amount.

Interest Rates

The applicable interest rate assesses the overall costs of  your home loan. Generally, long-term home loans lead to high interest rates and vice-versa.

Short Term vs Long Term Mortgage Loan

Here is a comprehensive comparison in terms of long term mortgage vs short term home loan -

Home Loan Elements	Short Term Mortgage Loan	Long Term Home Loan
Loan Tenure	Less than 5 years	Up to 25 years
Interest Rates	Lower interest rate	Higher interest rates
Monthly Instalments	High monthly instalments	Low and affordable monthly instalments
Property Refinance or Selling	A flexible option for those planning to sell or refinance properties soon	Not a suitable option for those planning to sell properties soon. This is because selling the property during the loan term may result in less equity
High Upfront Costs	Low upfront interest rate due to a short term	May have to incur a high upfront interest rate due to an extended loan term

Advantages of a Short-Term Home Loan

The top benefits of selecting a short term mortgage loan  for you include:

Availability of Quick Funding

Short term home loans are primarily designed to offer fast approval and disbursement of funds. Banks in the UAE process these loans efficiently, allowing you to quickly secure finance for purchasing the property.

This rapid access to funds can be crucial in a competitive property market. Furthermore, the streamlined application and approval process minimises the stress and uncertainty of securing a mortgage.

Cost-Effective Home Ownership

Short term home loans in the UAE can make homeownership more affordable by reducing the overall interest paid over the loan term. With a shorter loan tenure, you pay off the principal amount faster. This significantly lowers the interest burden compared to long-term loans.

This can result in substantial savings, especially in a high-property value market. Additionally, the shorter loan period often comes with lower interest rates, enhancing affordability. If you are someone who can manage higher monthly repayments, this option is a cost-effective way to finance a property.

Quick Debt Repayment

A key advantage of short term home loans is the quick debt repayment structure. This allows you to become debt-free sooner. With a shorter loan tenure, you can eliminate the financial obligation of a mortgage quickly, further using your money for other investments or savings.

This not only provides peace of mind but also reduces the long-term financial stress by minimizing exposure to interest rate fluctuations. Moreover, repaying the loan faster can positively impact your credit Score.

Disadvantages of a Short Term Mortgage Loan

We have explained the top two major disadvantages of having a short term mortgage loan:

High Monthly Instalments

• High monthly instalments can stretch your budget
• Limit your potential to save or invest in other assets
• Requires stable income to meet the payment schedule

Market Interest Rate Fluctuations

• Lower interest rates means vulnerability to market fluctuations
• High market interest rate increases the financial burden
• Unpredictability complicates financial planning
• Loans with variable interest rate may see sharp unexpected payment increase

Advantages of a Long Term Home Loan

The top four merits of choosing a long term home loan are as follows —

Efficient Financial Planning

• Spreads monthly instalments over a longer period for easier financial management
• Low monthly instalments saves funds for other expenses and investments
• Ensures stability and allows for better long-term planning
• Offers a manageable repayment structure, reducing your stress
• Fixed payment schedule can help in budgeting and reducing financial strain

Low Monthly Instalments

• Extending the repayment period significantly reduces monthly financial obligations, making homeownership more accessible and affordable
• Ideal for those with decent income allowing you to purchase property without stretching your budget
• Lower instalments help you maintain your lifestyle, save for the future, or invest in other opportunities
• The flexibility in managing finances is a key reason why many opt for long-term loans

Helps Build Equity

• A long term home loan helps build equity over time, which is the difference between the property’s market value and the outstanding loan balance
• Regular repayments reduce the principal, which increases your ownership stake in the property
• Equity can be used for future borrowing, refinancing, or even selling the property at a profit
• Growing equity provides a tangible asset and enhances overall financial security

Flexible Refinancing Options

• Modify your loan terms to fit your financial situation as market conditions change
• Refinance if lower interest rates are available at other banks
• Switch to a different loan structure that better fits your needs
• This flexibility results in significant cost-savings over the loan tenure and lets you pay off the mortgage quickly

Disadvantages of a Long Term Home Loan

The primary disadvantage of choosing a long term home loan is:

Risk of Increase in Interest Rates

• If you have a variable-rate loan, rising interest rates can lead to higher monthly payments and increased overall costs
• Even with a fixed-rate mortgage, future refinancing opportunities may be limited if rates rise
• The uncertainty of fluctuating payments can lead to financial instability, making long-term loans riskier over an extended period

Buy the Best Short Term Mortgage Loan and Long Term Home Loan at Policybazaar UAE

Irrespective of your loan term, we offer you a wide range of home loans. Policybazaar is a unique platform with multiple loan products from top-notch banks across the UAE.

The application is quite easy. Simply fill out the lead form, select the suitable product and apply. Get direct access to our home loan lead form here.

Enlisted below are the top reasons to choose us:

• Tie-ups with prominent UAE banks to offer you the best products
• Multiple home loan options with different features and benefits
• Hassle-free loan application process
• Apply for a mortgage loan within a few minutes
• Access to our customer support team with round-the-clock assistance
• Access to our website’s “Articles” section for all info related to home loans

In a Nutshell

Choosing a suitable home loan and its term requires wise financial planning. Here’s a quick guide to help you:

• Review your regular expenses, analyze your finances, and keep extra funds available for emergencies
• Know about short term mortgage loans and long term home loans thoroughly
• If required, consult an expert to discuss the loan type to opt for
• Align your requirements with the loan you choose for a manageable and stress free experience

Policybazaar UAE: Helping you navigate the wilderness of the insurance world!

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Under Construction House Loans with Variable Interest Rate	Mortgage Loan Procedure in UAE