Things to consider before applying for a Mortgage loan in the UAE
TToday, Dubai’s real estate market is dominated by the buyers or the end users. They are making increasing use of mortgage loan to fuel their investments. The duration of the loan, variable vs fixed interest rates and upfront costs are all factors that need to be considered. Lets us analyse each of the factors in some detail:
UAE central bank rules mandate that an expat must pay at least 25 percent of the total amount as a down payment or deposit (In case of total amount less than Dh5 million). There different other initial costs like
- 4 percent transfer fee
- .25 percent (of the total amount) as mortgage registration fee
- Typically, 2 percent is taken as real estate commission.
- Loan establishment fee
These costs add up to be around 7 percent of the property cost. For example, if you a buy a property worth Dh1 million you have to pay an initial extra sum of Dh70,000. But many banks are allowing 3/4th of these costs to be included in the home loan amount thus significantly reducing the cash you need to pay.
A mortgage pre approval is advised in order to confirm your budget before you start taking any decisions. You need to pay a cheque amounting 10 percent of the property price while signing the sales agreement. Now if due to some unforeseen circumstances the bank refuses to give you a loan then you would have to forfeit the check. Different banks have different lending policies, rates and fees, you will require the services of a professional mortgage broker to learn about the most suitable option.
One thing is certain, the longer the duration of the fixed rate the more expensive it is. Most bank offer a fixed rate for a period of 5 years and it typically ranges from 4.75 percent to 4.99 percent. Also, it has become easier to change your loan provider. For a 5-year fixed rate the switching costs may be higher but it is common for banks to offer more lucrative terms to the borrowers and prevent them from switching. Thus, understanding the risks associated with variable and fixed interest rates is really important for every buyer in the UAE.
Some other thing to remember are:
- Banks limit lending based on the borrower’s monthly income. Generally, 25 percent of the monthly income is set as mortgage payment.
- The maximum mortgage loan duration in the UAE is 25 years for salaried people and up to the age of 65. The age limit is 70 for self-employed people.
Written by ProprtyEportal media team.