
1% Payment Plan vs. Mortgage: Choosing the Best Option for Buying Property in Dubai
Oct 24, 2024
5 minutes read
Dubai’s real estate market offers diverse investment opportunities, with two popular payment options: the 1% payment plan and traditional mortgages. Each has its unique benefits, risks, and flexibility. Choosing between them depends on your financial situation, long-term goals, and lifestyle. This blog breaks down both options, highlighting their key differences and advantages, helping you make an informed decision. By the end, you'll better understand which payment method suits your Dubai property investment strategy.
What is a 1% Payment Plan?

The 1% payment plan is a relatively new and innovative offering in Dubai's real estate market. Developers have introduced this scheme to make property ownership more accessible to a broader audience. With the 1% payment plan, buyers are offered an easy and flexible way to finance their property purchases without the need for significant upfront capital or bank loans. The concept behind this plan is simple: buyers pay 1% of the property's total value each month over a specified period, typically stretching across several years.
This payment plan allows individuals to gradually pay off the property while enjoying the benefits of low, manageable monthly installments. Given the growing popularity of off-plan properties in Dubai, many developers offer the 1% payment plan to attract both local and international buyers.
How the 1% Payment Plan Works

While the 1% payment plan is marketed as an attractive, affordable option, it's essential to understand its mechanics thoroughly. Generally, the buyer must make a down payment, which is usually between 5% and 10% of the total property price. After this initial payment, the buyer is then required to make monthly payments equivalent to 1% of the property's value.
For example, if a buyer purchases a property worth AED 1 million, they would make a down payment of AED 50,000 to AED 100,000. After that, they would be required to pay AED 10,000 per month under the 1% payment plan. The length of the payment period can vary but typically ranges between five and ten years, depending on the developer's terms and the property's completion timeline.
One crucial aspect to note is that the 1% payment plan is often available for off-plan properties, which means buyers are purchasing properties that are still under construction. This can result in a longer payment term extending beyond the completion date of the project.
Benefits of the 1% Payment Plan

The 1% payment plan comes with several significant advantages that appeal to buyers who prioritize financial flexibility. The most obvious benefit is the affordability of monthly payments. Paying just 1% of the total value each month eases the financial burden, making it easier for buyers to manage their expenses without committing large amounts upfront.
Another benefit is that it eliminates the need for bank involvement, which can be a relief for buyers who may not meet the stringent eligibility criteria required for securing a mortgage. Banks often require extensive documentation, income verification, and credit checks. The 1% payment plan sidesteps these hurdles, offering an easier path to home ownership.
Moreover, buyers gain the flexibility to plan their finances over several years, without the need to tie up large sums in a single transaction. This gradual payment structure can be especially beneficial for investors who want to diversify their portfolios or first-time buyers looking to enter Dubai's lucrative property market without immediately locking in a traditional mortgage.
Is the 1% Payment Plan Right for You?

While the 1% payment plan has undeniable benefits, it's not the perfect option for everyone. The plan is best suited for buyers who want to secure a property without a significant upfront payment. If you’re someone who values flexibility and prefers a payment structure that doesn’t involve stringent bank approvals, this plan is worth considering. However, the 1% plan is mostly offered for off-plan properties, which means you may face delays or uncertainties in the project's completion. This payment option is ideal if you're comfortable waiting for the development to finish, but if you're seeking an immediate move-in or rental income, this plan might not align with your needs.
Understanding the Mortgage System in Dubai

Mortgages are the traditional method of financing property purchases in Dubai and are widely used by both residents and international buyers. A mortgage is essentially a loan provided by a bank or financial institution that allows the buyer to purchase a property without paying the entire amount upfront. Instead, the buyer borrows the majority of the property’s value and repays the loan over an agreed period, usually with interest. Dubai offers various mortgage options, including fixed-rate and variable-rate mortgages, allowing buyers to choose what suits their financial situation best. Mortgages in Dubai can cover anywhere from 70% to 80% of the property’s value, while the buyer is expected to provide a down payment for the remaining amount.
How a Mortgage Works

The mortgage process begins with the buyer applying for a loan from a bank or financial institution. To secure a mortgage, the buyer must typically provide a down payment of 20% to 25% of the property's total value, along with documentation proving their financial capability to repay the loan. This documentation often includes salary certificates, bank statements, and credit history. Once approved, the bank disburses the loan amount, and the buyer begins making monthly payments, which include the loan principal and interest. Depending on the mortgage terms, the repayment period can extend for as long as 25 years. During this time, the property acts as collateral, and the buyer retains ownership as long as payments are made on time.
For example, if a buyer secures a mortgage for a property valued at AED 1.5 million with a 25% down payment, they would initially pay AED 375,000. The remaining AED 1.125 million would be financed through the mortgage, with the buyer paying back the loan over the chosen loan term, which could be 15 or 20 years.
Advantages of a Mortgage

- Stability: One of the key benefits of a mortgage is the long-term stability it provides. Unlike the 1% payment plan, a mortgage allows the buyer to spread their payments over a much longer period, often up to 25 years. This extended timeframe means that monthly payments are more manageable, which can be appealing for buyers who plan to live in the property long-term or use it as an investment.
- Financing High-Value Properties: Mortgages also enable buyers to invest in high-value properties without requiring them to have the full amount upfront. For instance, if you’re interested in a luxury villa that costs several million dirhams, a mortgage can make it more attainable by providing the necessary financing.
- Immediate Occupancy and Income Potential: Additionally, with a mortgage, buyers can move into the property right after making the initial down payment, even while they are still repaying the loan. This can be a significant advantage for those who need to move in immediately or want to rent out the property for additional income.
Is a Mortgage Right for You?

A mortgage is a great option for buyers who meet the bank's eligibility requirements and prefer the security of structured, long-term payments. It's particularly advantageous for individuals who want to invest in higher-value properties, as the bank loan provides greater purchasing power.
However, mortgages involve interest rates, which can increase the overall cost of the property. Buyers must also be prepared to meet the bank’s documentation requirements and undergo credit checks, which can be a barrier for some. That said, if you have a stable income and can manage the long-term commitment, a mortgage is a reliable option for property financing in Dubai.
Comparing the 1% Payment Plan and Mortgage

Choosing between the 1% payment plan and a mortgage depends on your financial situation, your investment goals, and how much flexibility you need. While both options offer a path to property ownership, they cater to different buyer profiles and have distinct pros and cons.
Let’s dive into a detailed comparison of the two financing options.
1. Affordability and Financial Flexibility
When it comes to affordability, the 1% payment plan is typically more accessible in the short term. The low monthly payments are ideal for buyers who don't want to commit a large portion of their income upfront. On the other hand, mortgages offer a more structured payment system over a longer period, making them better suited for buyers who prefer consistent and predictable payments.
2. Impact on Your Cash Flow
The 1% payment plan is designed to provide flexibility, allowing buyers to maintain their cash flow for other investments or personal expenses. Since the payments are spread out over several years, buyers can avoid depleting their savings. Mortgages, however, require a larger initial deposit and involve higher monthly payments due to the interest. While mortgages allow for immediate property access, they can tie up a significant portion of your cash flow, particularly in the early repayment years.
It’s essential to consider how each option will affect your overall financial situation and whether you’re comfortable with the larger upfront commitment required by a mortgage versus the smaller, more manageable payments of the 1% plan.
3. Ownership Timeline
Ownership timelines also differ significantly between the two options. With a 1% payment plan, full ownership of the property is typically finalized only when the entire payment is complete. This can mean waiting several years before you fully own your home. In contrast, with a mortgage, you officially own the property after making the initial deposit, even though you continue repaying the loan. This gives mortgage holders the benefit of early ownership, allowing them to rent out the property, move in, or sell it, even while they continue making payments.
4. Property Options and Availability
The type of property you can purchase may also depend on your chosen payment method. The 1% payment plan is often available only for off-plan properties or new developments. This means that buyers interested in completed properties or more diverse selections may have limited choices. Mortgages, however, offer greater flexibility in this regard, as they can be used to purchase both completed and off-plan properties. This wider availability of properties allows buyers to select homes that are already built, reducing the uncertainty that comes with buying off-plan developments.
5. Flexibility in Payment Terms
The 1% payment plan offers shorter payment terms, usually around five to ten years. This can appeal to buyers who want to finish their payment obligations more quickly and avoid long-term financial commitments. Mortgages, on the other hand, can be extended up to 25 years, making monthly payments smaller and more manageable for those who prefer a longer repayment period.
6. Early Repayment
Both the 1% payment plan and mortgage systems have early repayment clauses, although the terms may differ. Mortgages often include penalties for early repayment, making it more costly for buyers who want to pay off their loan ahead of schedule. In contrast, the 1% plan may offer more leniency in this area, allowing for early repayment without hefty penalties, depending on the developer's policies.
7. Risk and Stability
Mortgages are generally considered more stable due to their fixed or capped interest rates, which provide predictable payments over the loan term. On the other hand, while the 1% payment plan eliminates interest, it may present some risk, especially if developers face delays in project completion. Buyers must research the developer's track record before committing to a 1% plan to ensure that they are working with a reliable company that will complete the project on time.
Making the Right Decision

Choosing between a 1% payment plan and a mortgage ultimately depends on your individual financial goals, needs, and comfort level. If you prefer minimal upfront investment and greater flexibility in managing your payments, the 1% payment plan may be the better option. However, if you're looking for long-term stability, early ownership, and a wider selection of properties, a mortgage might suit you better.
Whichever option you choose, it’s essential to evaluate your financial situation carefully, research your options thoroughly, and consider seeking professional advice to make an informed decision. Both payment methods offer unique advantages, so understanding their impact on your financial future is key to successful property ownership in Dubai.
Ready to Make Your Move?
Whether you’re leaning toward the flexibility of a 1% payment plan or the long-term security of a mortgage, owning a property in Dubai has never been more accessible. At 11Prop, we’re here to help you every step of the way.
Contact us today to explore the best payment options and find your dream home or investment property in Dubai’s thriving real estate market. Let’s turn your property aspirations into reality—get started now!