Mortgage Financing: When Is It a Blessing and When Does It Turn Into a Disaster? Complete Guide 2026

Introduction: 961 Billion Riyals in Mortgage Loans - Are They All Success Stories?

In Saudi Arabia today, there are more than 961 billion riyals in outstanding mortgage loans. A massive number reflecting millions of citizens' dreams of owning their lifetime home. But behind this number are very different stories. Success stories of families who achieved their dream and live happily in their homes. And tragic stories of people whose dream turned into a nightmare that destroyed their lives and scattered their families.

Mortgage financing is neither absolute good nor absolute evil. It is a powerful financial tool that can build your future or destroy it depending on how you use it. The problem is that many citizens enter this field without a real understanding of the numbers, commitments, and risks. They sign contracts extending 20 or 25 years without fully understanding what that means.

This article is not to scare you from mortgage financing nor to tempt you with it. It is an honest attempt to present the complete picture with its real numbers and different scenarios so you can make an informed decision you take responsibility for. Because the decision is ultimately yours alone.

What is Mortgage Financing?

Mortgage financing is simply a loan you get from a bank or financing company to buy a property whether an apartment, villa, or land. The bank pays the property price to the seller and you repay the bank in monthly installments for a period that may extend from 5 to 30 years. Of course, the bank does not lend you for free but adds profits or interest to the original amount.

The property remains mortgaged to the bank until you pay the last installment. This means you live in it and use it but cannot sell it or dispose of it without the bank's approval. If you stop paying, the bank has the right to seize the property and sell it to recover its money.

Types of Mortgage Financing in Saudi Arabia

Subsidized financing from the Real Estate Development Fund through the Sakani program where the state bears part of the profits ranging from 35 percent to 100 percent depending on family income. Unsubsidized financing which is regular commercial financing from banks with full profits borne by the borrower. Self-construction financing for those who own land and want to build their home. Off-plan purchase financing for buying units under construction.

When is Mortgage Financing a Blessing?

Mortgage financing can be an excellent decision that changes your life for the better if the right circumstances are available and you make the decision with awareness and study.

Scenario One: Benefiting from Full Government Support

If your family income is less than 14 thousand riyals monthly, you are eligible for support of up to 100 percent of financing profits. This means you only pay the principal amount without any additional profits. Monthly support can reach 4200 riyals and there is a lump sum support of up to 150 thousand riyals. In this case, financing is a golden opportunity not to be missed.

Scenario Two: Installment Less Than Rent

If you pay a monthly rent of 4000 riyals for example and get financing with an installment of 3500 riyals, you are converting a wasted expense into an investment in property you own. After the payment period ends, you own a property whose value may have doubled, while if you continued renting you would own nothing.

Scenario Three: Stable Income and Guaranteed Job

If you are a government employee or in a large stable company and your income covers the installment comfortably with sufficient surplus for living and emergencies, financing is a relatively safe option. Job stability significantly reduces the risk of default.

Scenario Four: Protection from Inflation and Price Increases

Property prices tend to rise in the long term. If you buy today with fixed-installment financing, you protect yourself from future price increases. The installment you pay today of 5000 riyals will remain 5000 riyals after 15 years while rents may double.

Scenario Five: Exemption in Case of Death

Mortgage financing in Saudi Arabia includes insurance that exempts heirs from paying the remaining installments in case of the borrower's death or total disability. This means your family will get a fully paid home. This is a very important advantage from the perspective of family protection.

When Does Financing Turn Into a Disaster?

The dark side of mortgage financing is real and painful. There are thousands of tragic stories of people whose lives were destroyed due to hasty decisions or circumstances beyond their control.

Scenario One: Shock of Real Numbers

A citizen with limited income got financing of 500 thousand riyals to buy an apartment. Monthly installment 5000 riyals for 20 years. Let us calculate together: 5000 riyals times 12 months times 20 years equals 1.2 million riyals. This means she will pay more than double the original apartment value. The bank's profits from her alone are 700 thousand riyals. These are shocking numbers but they are real.

Scenario Two: Job Loss

A young man in his thirties took financing based on his salary at a private company. After 3 years the company closed and he lost his job. He searched for work for months without success. He was late on payments for 3 consecutive months. He was registered in Simah as defaulted. His government services were suspended. Now he cannot renew his license or travel or even get a new job because most companies check the Simah record.

Scenario Three: Multiple Loan Trap

An employee with a salary of 15 thousand riyals. He took a mortgage loan with an installment of 5000 riyals then a car loan of 1500 riyals then credit cards with obligations of 1000 riyals. Total 7500 riyals which is 50 percent of his salary. He has 7500 riyals left for rent if the property is under construction and bills and living expenses and education and health and emergencies. Any small emergency puts him into a default spiral.

Scenario Four: Defective Property

He bought a house through the bank without thorough inspection. After moving in he discovered plumbing leaks and wall cracks and floor sinking. Repair cost 80 thousand riyals he does not have. The bank says this is not our responsibility. The seller disappeared. He is now paying installments for a house unfit for living and paying rent for another house he lives in.

Scenario Five: Losing Home and Family

Late installments accumulated. The bank filed a lawsuit. A seizure order was issued. The house was sold at auction at a price below its real value. The amount did not cover the full debt. The citizen is now homeless and still in debt and his services are suspended and his credit record is destroyed. His wife asked for divorce from the pressure. His children are suffering psychologically. A real story that repeats more than we imagine.

Numbers the Bank Employee Does Not Tell You

The bank employee wants to close the deal. This is his job. He will not sit with you to explain the dark side of financing. This is your responsibility to understand.

True Total Cost

When the employee tells you the profit rate is 4 percent, he is talking about the annual rate. But over 25 years this rate accumulates significantly. One million riyals financing at 4 percent for 25 years means you will pay about 1.58 million riyals. Profits alone 580 thousand riyals. This is what you need to know before signing.

Current Interest Rates 2025

Interest rates in Saudi banks currently range from 3.29 percent at SAB First Bank to 4.78 percent at Bank AlJazira. Subsidized financing can reach as low as 1.85 percent at Riyad Bank or even zero percent for some categories. The difference between 2 percent and 5 percent over 25 years can reach hundreds of thousands of riyals.

Hidden Fees

Administrative fees up to 1 percent of financing value or 5000 riyals maximum. Property valuation fees. Life and property insurance fees. Early repayment fees if you want to end the loan before its due date, usually 3 months of profits. All these add to the total cost.

The 2 in 1 Feature Trap

Some banks offer a 2 in 1 feature where the installment is low in the first years then rises significantly later. The offer may seem attractive but it is a dangerous trap. Many fell into it then were surprised by a jump in the installment they could not afford.

Ten Fatal Mistakes Borrowers Make

These are real mistakes from experiences of people who paid dearly for them. Learn from them before you repeat them.

Mistake One: Not Calculating Total Cost

Focusing only on the monthly installment without multiplying by the total number of months. A 4000 riyal installment seems simple. But 4000 times 300 months equals 1.2 million riyals. This is the real number you should look at.

Mistake Two: Choosing the Longest Payment Period

Choosing 30 years because the installment is lower. But the longer the period the more profits you pay. The difference between 20 years and 30 years can reach 200 thousand riyals or more in additional profits.

Mistake Three: Borrowing at Maximum Limit

The bank approves deducting 65 percent of salary so he takes it all. This leaves him with no safety margin for any emergency. The ideal ratio according to the Central Bank is that the installment should not exceed 30 percent of income.

Mistake Four: Ignoring Reading the Contract

He signs a 30-page contract without reading it. Important clauses are buried in the inner pages. Late payment penalties and early repayment terms and breach fees are all there but he did not read them.

Mistake Five: Relying on Employee Verbal Promises

The employee said you can pay early without fees. But the contract says otherwise. Verbal promises have no legal value. What is written in the contract is binding.

Mistake Six: Not Comparing Offers

He goes to his usual bank and takes the first offer. The difference between banks in profit rate can reach 1.5 percent. Over 25 years this translates to a difference exceeding 150 thousand riyals. Comparison is worth the effort.

Mistake Seven: Buying Property Without Inspection

He is impressed by the exterior appearance and does not inspect plumbing and electricity and foundations. He discovers defects after purchase and becomes obligated to pay installments for a defective property.

Mistake Eight: Ignoring Down Payment

He takes financing without a down payment or with the minimum possible. Result is higher installment and more profits. The higher the down payment the lower the installment and total cost.

Mistake Nine: No Emergency Fund

He puts all his savings in the down payment and leaves nothing for emergencies. The first financial crisis hits him and he starts falling behind on payments.

Mistake Ten: Buying Under Psychological or Social Pressure

He buys because his friends bought or because his family is pressuring him. An emotional decision in a financial matter of this magnitude is a guaranteed disaster.

What Happens If You Default?

Default is not the end of the world but its consequences are real and painful. Understanding them beforehand may motivate you to avoid them.

When Are You Considered Defaulted?

If you are late paying 3 consecutive installments or 5 scattered installments during the financing period you are considered officially defaulted. This classification has immediate consequences.

Direct Consequences

Registration in Simah which is the Saudi Credit Bureau. This means any bank or company or even employer checking your record will know you defaulted. Your bank account may be frozen. An order may be issued to suspend your government services. A travel ban order may be issued.

Legal Procedures

The bank will call you first and try to negotiate. If you do not respond they will file a lawsuit. If a judgment is issued against you the case is referred to the Execution Court. The Execution Court has broad powers including seizure of property and accounts and even salary.

Property Sale at Auction

In the worst scenarios your property is sold in a public auction. The problem is that auctions often sell below market price. Your property may be sold at a price that does not cover your full debt so you lose the property and still remain in debt.

Impact on Family

Psychological pressure from lawsuits and service suspension and travel ban affects marital and family relationships. Losing the home means the family will look for alternative housing under difficult circumstances. Children are affected psychologically and academically. This is not exaggeration but documented reality.

How to Protect Yourself Before Signing?

Prevention is better than cure. These are practical tips from experts and from people's real experiences.

Calculate Total Cost Yourself

Do not be satisfied with what the employee says. Multiply the monthly installment by the total number of months. This is the real amount you will pay. Compare it to the original property price. If the difference is too large reconsider.

Compare at Least 3 Banks

Get written offers from 3 different banks. Compare profit rate and total cost and fees and terms. Do not rush. This is a decision that extends for decades.

Consult a Specialist

An independent financial advisor or lawyer specializing in contracts can reveal things you will not see yourself. Consultation cost is small compared to the size of the commitment.

Read the Full Contract

Every page and every clause. Ask about anything you do not understand. Do not sign anything unclear. Take a copy home and read it calmly before final signing.

Inspect Property Before Purchase

Get a specialist engineer to inspect the property thoroughly. Inspection cost does not exceed 2000 riyals and may save you tens of thousands.

Start with a Good Down Payment

The higher the down payment the lower the monthly installment and the lower the total profits. If you can pay 20 or 30 percent instead of 10 percent do it.

Keep an Emergency Fund

Keep enough to cover at least 6 months of installments as a reserve. This protects you in case of job loss or any emergency.

Do Not Borrow at Maximum Limit

Even if the bank approves deducting 65 percent of your salary do not do it. Make the installment less than 30 or 35 percent of your income to leave a safety margin.

Checklist Before Taking Financing

Before signing any financing contract make sure to answer these questions.

Financial Questions

Is the monthly installment less than 30 percent of my income? Did I calculate the total cost and compare it to the property price? Did I compare at least 3 offers? Do I have an emergency fund for 6 months? Is my income stable and guaranteed?

Property Questions

Did I inspect the property with a specialist engineer? Is the location suitable for my long-term needs? Is the property desirable and can be sold if necessary? Did I verify the deed and documents?

Contract Questions

Did I read the full contract and understand all its clauses? Did I ask about late payment penalties and early repayment fees? Did I take a copy home before signing? Did I consult a lawyer or financial advisor?

What to Do If You Start Defaulting?

If you feel you are starting to have difficulty paying do not ignore the problem. The earlier you act the better your options.

Contact the Bank Immediately

Do not wait until they call you. Take the initiative. Most banks have programs for debt rescheduling and period extension and installment reduction. Early communication shows good faith and opens more options for you.

Study Refinancing Option

You may find another bank offering better terms. Refinancing means transferring your debt to another bank with lower installment or longer period. The Saudi Real Estate Refinancing Company offers this service.

Review Your Expenses

There may be expenses that can be reduced or eliminated to provide the installment amount. Sometimes temporary sacrifices save you from permanent disaster.

Look for Additional Income

Part-time work or a small project may provide the difference you need. The difficult financial situation is temporary if you deal with it seriously.

Frequently Asked Questions

What is the Maximum Deduction from Salary?

The Saudi Central Bank determined that total deduction should not exceed 55 percent for those whose salary is less than 15 thousand riyals and 65 percent for those whose salary is higher. But these are maximum limits not ideal ones. It is better that the installment does not exceed 30 percent.

Is Subsidized Financing Better Than Unsubsidized?

Yes generally. The subsidy bears part of the profits which significantly reduces the total cost. If you are eligible for subsidy definitely benefit from it.

What Happens If Property Value Drops Below Loan Value?

You remain obligated to pay the full loan regardless of the property's market value. This is one of the risks you should be aware of.

Can the Loan Be Paid Off Early?

Yes but most banks charge early repayment fees equivalent to 3 months of profits. Make sure of this clause in the contract before signing.

What If I Die Before Paying Off the Loan?

Mortgage financing in Saudi Arabia includes insurance that exempts heirs from remaining installments in case of death or total disability. The family keeps the home without any obligations.

Can the Financed Property Be Rented?

It depends on contract terms. Some banks require the property to be for personal residence. Review the contract or ask the bank before renting.

Conclusion

Mortgage financing is a powerful financial tool that can achieve your lifetime dream or destroy your life. The difference between the two scenarios is awareness and planning and caution. Do not enter this huge commitment unless you are fully aware of all its positive and negative aspects. Calculate the real cost and read the full contract and consult specialists and leave a safety margin and do not borrow at maximum limit. If you do all that and your circumstances are suitable then financing may be the best decision in your life. And if you rush and ignore the warnings it may be the worst decision. The choice is yours and the responsibility is yours. Choose wisely.