Owning a home is a universal financial goal, and by relation, a mortgage has become a key tool in reaching it. Whether or not you plan on settling in the UAE for the long run, purchasing a property is a viable option that, in conjunction with a home loan, may make more sense than renting for years and ending up with no asset to show for it. Taking the time to study the market thoroughly and understanding the different mortgage options in the UAE will help you make the right choice. There are a few things to consider when comparing home loans.
Understand All Fees
All home loans, no matter who is offering them, come with major fees. Find out if there are yearly or monthly administration fees that are added to the loan amount. In addition, home loans in the UAE usually come with an application fee, arrangement fee and a property valuation fee. Ask for a waiver or look for a lender that is offering discounts on these charges. You should not be paying more than 1% of the loan amount as an arrangement fee. Some banks will give you the option of either paying it upfront in cash, or adding it to the loan amount, in which case a higher percentage is charged.
Banks in the UAE also require the borrower to insure the property; luckily, home insurance tends to be reasonably priced at around 0.05% of the property’s value. Lastly, you will also need to pay for borrower’s life insurance, which is around 0.4% of the outstanding loan amount.
Mortgage Comparison & Interest Rates
Make sure you are getting the best mortgage interest rate, note that this does not necessarily mean the lowest rate. Banks in the UAE typically offer rates that can be fixed for 1 to 5 years. This means that the interest rate you are paying will remain the same for that period. However, thereafter, it becomes a variable rate that will change on a quarterly or annual basis. This is where it gets tricky! Some banks use a transparent benchmark called EIBOR, which is reported through the UAE Central Bank. For example, a bank might charge you EIBOR + 1%, this means that whatever EIBOR is at the time your home loan interest rate is being reset, they add 1% to it. Abu Dhabi Islamic Bank, Commercial Bank of Dubai, HSBC and RAKBANK are just a few lenders who offer EIBOR-linked home loans.
However, more recently, some UAE banks have abandoned the EIBOR in favor of their own internal benchmarks. Emirates NBD and Standard Chartered now use their own consumer base rates to determine the lending rate. Comparing home loans in the UAE can be done easily using bayzat.
It is important to be as flexible as possible when it comes to financial responsibilities. No one can guarantee the future and their own financial stability, so choosing a loan that offers payment holidays may come in handy. In addition, taking a mortgage with low early repayment fees is a good idea in case you decide to pay off the loan earlier, refinance your mortgage, or sell your property. Make sure to shop around and see what offers are out there before committing yourself to a loan and potentially burying yourself in a heap of debt for the considerable future.