This guide helps you understand the terminology and important parts of the Dubai real estate mortgage process for the better understanding of all the terms used in the mortgage application and for most appropriate deal selection.
This term refers to the total amount of loan taken when compared to the property cost. For example, 70% LTV signifies that the purchaser will make an initial payment of 30% and will apply for a loan of 70% of the property‘s cost.
The distinction made when the cost of the property bought and what you owe on it are compared, is termed as Equity. As payments are being made, the amount being owe on the property starts decreasing and the equity starts developing; the same is true if there is an increase in the property’s value from the time you purchased it. Several lenders give borrowers option of using their equity for borrowing more; hence you can have access to finance and fulfill other requirements like purchasing a car or developing an investment portfolio. Equity release is a great way of getting money out of the property you own.
This is used to explain the shift from one lender to the other while the loan term has not ended. The borrower may decide to change lenders to avail more attractive rates or other choices available for loan. Nevertheless it is always important giving value to the present relationship you have with your lending organization; having good relationship with the lending organization means you don’t have to go to a new lending institute for loans and thus building the relationship all over again.
This type of loan repayment is most widely used; it involves making payments at regular intervals for fixed tenure. Monthly mortgage payments contain a part dedicated to the capital (repaying the principal value of loan) and a part assigned to interest. During the early years of payment, the portion of interest is more, as only a small amount of payment is taken as principal payment. However with the progress of mortgage terms, the portion in the capital of payments generally increases with the interest level decreasing. Generally, lenders might offer mortgage term of up to a maximum of twenty five years or at most 70 years old adults that are nationals and are expatriates who are self-employed or employed and are aged 65 years, whichever is earlier, will be allowed a loan .
This option for paying the loan is basically offered for those properties that are going through the process of construction. During the interest-only term, no payment is made towards capital and the complete portion of the payment goes towards interest repayment One can exercise the option of using interest only as the mode of repayment when the term is to be of no more than five years.
As the name suggests, borrowers can opt for respective percentages of paying back the mortgage and interest based mortgages to suit their preferences.
The form of mortgage chosen by you and the policies of the lender will decide the down payment deposit you will be required to pay at its minimum. Generally in UAE, the legal system requires the expatriates who purchase a home for the purpose of living in to make an initial payment valuing up to twenty five to thirty five per cent of the cost of buying the property. If you are an expatriate investor you will need to come up with an initial payment of forty per cent of the purchasing price of the property. The Off plan purchases of property need a larger initial payment valuing up to fifty per cent of the purchase price, and the buyer needs to pay this from his own pocket.
This is normally a compulsion from all the loan providers in Dubai and it helps in repayment of the dues of mortgage in case you die during the term. For buyer who have a family to leave behind, and the buyer is aware of the fact that the family won’t be able to pay mortgage debt on their own, this is a very helpful option. Other forms of covers provided by the insurance include the ones for terminal illness and disability.
Application for a mortgage shall result in lenders offering you one or the other type of interest on paying back the dues on mortgage or a combination of the two Fixed rate mortgages have the rate of interest stable throughout the tenure of the mortgage; this rate is determined prior to finalising the offer letter of mortgage and is generally offered for the term of 1,2,3 or 5 years, although some lenders might offer a stable rate of interest for the complete duration of the loan term .These mortgages have several advantages and may be a better option for you for the following reasons:
It is important to understand that when the term of fixed interest rate ends, the variable rate of interest will apply; in such a case the interest rate is called follow on rate. Always make sure that you understand what the variable rate will be before you commit to taking the loan.
These are mortgages of interest rates that are dependent on variable factors of the market and thus, it is uncontrollable in the tenure of loan. No matter how difficult it is to determine how much your monthly payments will be, this form of mortgage might be more desirable choice for you if:
Before signing the agreement, one should know the effects of different types of rates of interest on the payments you will make in the future and select the most appropriate option accordingly.
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