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Property Mortgage Guide for Dubai, UAE

Property Mortgage Guide for Dubai, UAE

Mortgage Guide

 

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.

 

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Charges for early Repayment:

There is a fine that is levied by the loan givers, on those who borrow,   when they wish to return the amount of loan taken before the term ends. Charges for early repayment vary depending on whether the mortgage is the one taken on fixed rate or variable rate of interest.

 

 

Loan-to-Value Ratio (LTV)

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.

Equity Release

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.

Re-mortgaging

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.

 

Types of payment methods used when a mortgage is repaid

 

Capital and Interest (Repayment Mortgage)

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 .

Interest-only Payments

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.

Part Repayment and Part Interest-Only Mortgages

As the name suggests, borrowers can opt for respective percentages of paying back the mortgage and interest based mortgages to suit their preferences.

Deposits and Down payments

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. 

Loan Protection Insurance

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.

Fixed and Variable Rate Mortgages

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:

Advantages of fixed mortgage rates:

  • The payments can be budgeted as you are aware of the rate of interest which is not subject to any change
  • If there are chances of mortgage rates to increase  and one  wishes to lock a constant interest rate
  • One can have prior information of the value of  monthly payments 

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.

Variable rate mortgages

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:

  • You believe that there is a strong possibility that the rate of interest shall stabilize or fall during the loan tenure
  • There is  financial flexibility to handle an increase in mortgage payments when  the interest rates increase

 

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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