Mortgage versus cash: known limitation 1

It compares an interest cost against a yield, but a repayment mortgage also returns capital, which is saving rather than cost. Comparing a full repayment instalment against net income overstates the drag and makes leverage look worse than it is.

Mortgage versus cash: known limitation 2

Rates are not fixed forever. A three or five year fixed period ending into a higher rate environment is the most common way a comfortable position becomes an uncomfortable one, and it is entirely foreseeable.

Mortgage versus cash: known limitation 3

The yield used is almost always the gross one. Run the comparison on net yield or it is meaningless.

Playbooks / Property

Mortgage versus cash

Borrowing to buy a property raises the return on your own money whenever the net yield exceeds the mortgage rate and lowers it whenever it does not, so the decision is not about affordability, it is about whether the spread between those two numbers is wide enough to pay you for the risk.

The rule

Most buyers frame this as can I afford to pay cash. That is the wrong question, because paying cash is always affordable if you have the cash. The right question is what each dirham of borrowing earns you, and what it costs you when the assumptions fail.

The arithmetic in one line

If the property's net yield is above the mortgage rate, leverage lifts the return on your own money. If it is below, leverage lowers it. That is the whole mechanism, and everything else is a refinement of it.

Take a unit at one and a half million dirhams with a 4.3 percent net yield, so about sixty five thousand of net operating income.

Cash. You put in roughly 1.6 million including acquisition costs and receive 65,000. Your money earns 4.1 percent.

Seventy five percent mortgage at 4.0 percent. You borrow 1,125,000 and put in about 471,000 of your own. Interest costs 45,000, leaving 20,000. Your money earns 4.2 percent, and you control an asset four times the size.

The same mortgage at 6.0 percent. Interest costs 67,500 against 65,000 of income. The property no longer covers its own debt. You now fund it out of salary, and the return on your own money is negative before any price movement.

Two percentage points on the rate turns the same building from a modest income asset into a monthly bill. That sensitivity is the point.

What the rules allow

The UAE Central Bank caps how far you can take this. For an expatriate buying a first completed property under five million dirhams the ceiling is generally seventy five percent, dropping to sixty five percent above five million and sixty percent on a second property. Off-plan is capped at fifty percent for everyone. Total debt service is separately limited to half of gross monthly income, and the binding constraint is whichever of the two bites first.

Note that the deposit is not the whole of the cash you need. Acquisition costs are another six to seven percent of price and cannot be borrowed. How much you can borrow at all is a separate test the bank runs before any of this, which mortgage capacity sets out.

What leverage does that yield tables never show

It multiplies price movements against your equity, not against the price. At seventy five percent loan to value a fifteen percent fall in value removes sixty percent of your equity before selling costs. The building lost fifteen percent. You lost sixty.

It also converts a flexible asset into a fixed obligation. A cash buyer facing a long vacancy has a disappointing year. A leveraged buyer facing the same vacancy has a payment due on the first of the month regardless.

How to actually decide

Write down three numbers. Your net yield, calculated properly rather than from the listing. The all-in mortgage rate including arrangement and valuation fees. The spread between them.

If the spread is under a point, leverage is being paid for by hope rather than by income, and the case rests entirely on capital growth. That may still be a defensible position, but it should be stated out loud rather than smuggled in through a yield table.

Then stress it. Refinance at three points higher. Twelve months empty. Both at once. If any of those cannot be funded from income you already have, the loan is larger than the position.

The arithmetic

Return on your own money, cash = Net operating income / (price + acquisition costs) Return on your own money, leveraged = (Net operating income - annual interest) / (deposit + acquisition costs) The rule net yield > mortgage rate -> leverage lifts the return net yield < mortgage rate -> leverage lowers it, and the gap is funded from salary Equity at risk equity wiped out by a price fall of (1 - LTV) at 75% LTV, a 15% fall removes 60% of equity UAE caps, expatriate, indicative first property, completed, under AED 5m 75% first property, completed, over AED 5m 65% second and subsequent, completed 60% off-plan, anyone 50% total debt service <= 50% of gross income

Where it breaks

It compares an interest cost against a yield, but a repayment mortgage also returns capital, which is saving rather than cost. Comparing a full repayment instalment against net income overstates the drag and makes leverage look worse than it is.
Rates are not fixed forever. A three or five year fixed period ending into a higher rate environment is the most common way a comfortable position becomes an uncomfortable one, and it is entirely foreseeable.
The yield used is almost always the gross one. Run the comparison on net yield or it is meaningless.
It assumes the loan is available at the size you modelled. The debt burden ratio frequently binds before the loan to value cap does, particularly for buyers with existing obligations.
Currency matters if income and debt are in different currencies. Dirham debt against dirham rent is matched. Dirham debt against income earned elsewhere is a currency position you did not intend to take.
Leverage is not a strategy on its own. It amplifies whatever the asset does, and it has no opinion about whether the asset was a good idea.

When to use it

Before deciding how much to borrow, which is a different question from whether you qualify. Also at every refinancing, because the spread that justified the loan is recalculated at the new rate and may no longer justify it.

Run it on your own numbers

The Net Rental Yield does this arithmetic for you, in your currency, in about thirty seconds.

Open the calculator

Sources

Last reviewed 26 August 2026. Commercial relationship disclosure: the author works in Dubai real estate brokerage. See the disclosure standards. Disclosure standards.