Apply For Mortgage In UAE
A legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
Expats must pay a minimum deposit of 25 per cent of the purchase price for properties sold for less than Dh5 million. First, let’s consider the initial costs. As per UAE Central Bank rules, expats must pay a minimum deposit of 25 per cent of the purchase price for properties sold for less than Dh5 million. In Dubai, in addition to this down payment, you’ll need an additional four per cent transfer fee (less in other emirates) plus a 0.25 percent mortgage registration fee calculated on the loan amount. In all emirates, you’ll classically pay two per cent real estate commission, a valuation fee of Dh2, 500 to Dh3, 000 and often a loan firm fee of up to one per cent of the loan amount.
Together, these add about five to seven per cent to a property’s cost – for example, buying a home for Dh1.5 million in Dubai would deserve extra fees of over Dh100, 000, according to the mortgage calculator.
There is some good news, however, that some banks are now allowing mortgage borrowers to add three-quarters of these purchase fees to their home loan. On a Dh1.5 million purchase, this would decrease the cash an expat buyer neeGet pre-approval.
In terms of mortgage duration, the maximum loan allowed in the UAE is 25 years for salaried people up to the age of 65 (70 for self-employed). A longer term minimizes monthly payments but increases the total interest you’ll finally pay to the bank. We advise that you take the longest term as this will maximize your borrowing ability and if you can pay for it, make additional payments during the course of the loan. Borrowers can usually repay an extra 10 per cent of the principal amount remaining each year, so you can repay quicker if desired. Paying an extra 10 per cent per year on a Dh1.2 million loan will facilitate you to pay off your loan three years sooner and save you over Dh75,000 in interest.
Prospective buyers should first obtain mortgage pre-approval to confirm their budget before doing any serious property hunt. Signing a sales agreement requires the buyer to give a cheque for 10 per cent of the purchase price – should you commit before securing financial approval and are then refuse bank finance, you will give up the deposit.
Banks typically limit mortgage lending so that repayments are no more than 25 per cent of a borrower’s monthly income. Lenders will also take into account existing debts such as car loans or credit card debt when calculating how much to lend. Different banks, however, have different borrowing capacity calculation formulas. For someone earning Dh25, 000 per month, the different lending policies between banks can mean a difference of Dh300, 000 in your pre-approved mortgage limit.
In terms of mortgage duration, the maximum loan allowed in the UAE is 25 years for salaried people up to the age of 65 (70 for self-employed). A longer term minimizes monthly payments but increases the total interest you’ll finally pay to the bank. We advise that you take the longest term as this will maximize your borrowing ability and if you can afford it, make extra payments during the course of the loan. Borrowers can usually repay an extra 10 per cent of the principal amount remaining each year without fine, so you can repay quicker if desired. Paying an extra 10 per cent per year on a Dh1.2 million loan will allow you to pay off your loan three years earlier and save you over Dh75, 000 in interest.
Interest rates to rise:
Mortgage interest rates are currently around 2.99 to five per cent, but are starting to creep up following rate rises in the US – the dirham’s dollar peg means UAE interbank rates follow those of the Federal Reserve. The Fed’s current moves look to sign the beginning of the end of nearly a decade of ultra-low interest rates and we strongly suggest borrowers secure a fixed rate for their mortgage. This is usually for a two-year period and UAE banks currently offer fixed rates of 3.5 per cent to 4.5 per cent, which is a little above the variable rate.
A borrower’s interest rate and therefore monthly repayments will remain unchanged in a fixed rate mortgage, reducing the chances of them receiving into financial difficulties but the revision rate could be much higher which will have a big impact on monthly mortgage payments. Let’s review the earlier example of a Dh1.5 million property purchased with a 25 per cent cash deposit plus 75 per cent of the fees added to the mortgage, leaving a mortgage of just over Dh1.2 million. A 3.5 per cent interest rate would make the monthly repayment Dh6, 009, but if rates were to rise to 5.5 per cent, repayments would jump to Dh7, 392 – that’s an increase of 23 per cent.
Some banks offer fixed terms of up to five years. The longer the fixed rate, the more expensive it is. Five-year fixed rates currently range from 4.75 to 4.99 per cent, which is considerably higher than the one- and two-year fixed rate but still very reasonable by historical standards and advisable for those seeking peace of mind. Understanding the risk between fixed and variable rates and the different revision rates available in the market is important to every borrower. You can either talk to every bank in the UAE or to one good specialized self-determining mortgage broker who can quickly list and compare the various options for you.
Different banks also have different policies towards where they work, whether or not they are self-employed, a UAE local and the property being used as securities.
Types of Mortgages:
There are different types of mortgages available, the most common are as follows:
- Capped mortgages:
A capped mortgage is the combination of variable and fixed mortgage.
- Current account mortgages:
You can merge your mortgage with your current account and create a single balance.
- Discounted mortgages:
These type of mortgages are offered at a slightly reduced percentage cost to the Standard Variable Rate. You can get a discounted mortgage at 0.5% off the Standard Variable Rate for a period of 5 years and after which you will be paying the full Standard Variable Rate.
- Fixed rate mortgages:
The interest rates do not change and the general interest rate fluctuations will not affect your mortgage interest rate. The lenders usually don’t set the interest rate for the entire length of the mortgage; they will usually re-evaluate the interest rate after a fixed term.
- Offset mortgages:
This type is similar to that of current account mortgages. The mortgage relies on your savings to decrease what you own on mortgage. The bank accounts, mortgage and savings are kept one by one and not joint like current account mortgages.
- Standard Variable Rate mortgages:
This mortgage uses non-fixed interest rate. The interest rates fluctuate based on the base rate of the bank who lend you the loan.
- Tracker mortgages:
This type or mortgage is entirely tied to your bank’s base rate.
Types of Mortgage Payments
Mortgage payments can be made in the following two ways:
- Repayment mortgages: The mortgages are charged per month cost on the debt payable and interest. After the last mortgage payment is made, the house is paid off completely.
- Interest-only mortgages: Here only the interest is paid off on the loan and not the actual debt. If you have taken a mortgage of AED500, 000 for 25 years, the mortgage amount after 25 years remains AED500, 000 as you are only paying the interest on mortgage till then. In order to pay off the mortgage investments are set up strictly to pay for the home in full at the end of the term. People usually open pension, donation or ISA accounts.
- Part repayment and part interest only mortgages: The borrower can pay a percentage of the repayment and only interest mortgages to suit their needs.
Leading banks offering mortgages in UAE
Following are the leading banks offering mortgages in UAE:
- Abu Dhabi Commercial Bank:Minimum salary required is AED15, 000 for salaried expat and for resident it is AED8, 000. Self-employed resident has to have AED10,000 as minimum salary, the expat must have AED20,000. The processing fee charged is 1% of the loan or minimum AED5,000. The repayment penalty charged is 3% of the outstanding amount.
- 5.25% fixed interest for two years for self-employed individual.
- 4.99% fixed interest for two years for salaried individual.
- 5.49% fixed interest for five years for self-employed individual.
- 4.99% fixed interest for five years for salaried individual.
- Interest rate after the fixed period is 2.25% plus the retail base rate.
HSBC offers up to 75% of the developer price. The bank requires mortgage protection and building insurance. 1% is charged as an arrangement fee for the mortgage. The properties financed are JBR, Al Hamra Village in Rak, Green Community, Al Nakheel, Marina Heights Tower, Emaar Villa’s and Townhouses. The interest rates offered ranges from 3.24% per annum to 4.99% per annum.
The maximum loan amount offered is up to AED10 million. The bank requires you to take insurance for your life and property. The processing fee charged is 1.25% of the loan amount. Properties financed are Istithmar Realty, Emaar properties and Nakheel. The interest rate charged varies depending on the property.
National bank of Abu Dhabi: NAD offers mortgage to UAE Nationals. The loan amount offered is up to 80% of the property price. The maximum amount offered is AED20 million. The repayment tenure is up to 25 years. The interest rate starts from 2.94%. The processing fee charged is 1% of the loan amount. Mortgage loans are also offered to individuals.
- What is home mortgage?
Home mortgage is where the property owner transfers the title of the home to the lender on the situation that the title will be transferred back once the payment has been made.
- What are the different types of mortgages available?
The following are the different types of mortgages available:
Current account mortgages
Fixed rate mortgages
Standard Variable Rate mortgages
- What are the different types of mortgage payments available?
The following are the different types of mortgage payments available:
Part repayment and part interest only mortgages
- What is the maximum tenure for which one can get a mortgage?
Mortgage repayment tenure can go up to 15-30 years of monthly payments.
- Should one take insurance while taking a mortgage?
Yes, most lenders require you to take a life insurance or mortgage or property insurance when taking a mortgage.