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Mortgages in the UAE
It is very rare these days to buy a house or property without taking some form of a mortgage. Increasing property prices and a rising market mean only a select few can put down in cash the thousands needed to buy a house outright.
However the good news for the rest of us is that within the United Arab Emirates there are many different mortgage providers and an excellent range of mortgages on offer. If you are a first time buyer, refinancing or buying your second to third home you are likely to find the right product most suited to you.
moneyguide provide a home loan and mortgage calculator for you to work out your monthly repayments and compare the best mortgages within the UAE.
For an Expatriate a 25% down payment is now required to purchase property and its 20% for a UAE National. UAE mortgages are primarily offered on a repayment basis across a 15 to 25 year tenure.
What is a mortgage?
A mortgage is a loan provided by a financial institution in which your house is used as the collateral. The bank or mortgage lender loan up to 80% of the property value which you must pay back over an agreed period of time.
If you fail to keep up with the agreed repayments, the lender may legally repossess your house.
Advantages of taking out a Mortgage or Home Loan.
For most of us buying a house is the largest purchase we will ever make, subsequently taking out a mortgage will be the largest debt too. The difference is that the debt or mortgage you take is agreed and structured in a way allowing you to make affordable repayments each month.
Interest rates for mortgages as an average are lower than other types of borrowing, this is due to your mortgage being secured against your home. This gives the banks added security and if you fail to make your repayments they will own your house for future resale.
The most common tenure of a mortgage is 25 years, especially for first time buyers however you may set the loan duration over a period to suit you. Taking a longer mortgage policy you would pay more interest in the long run but your monthly payments would be lower. The opposite is also true, a shorter mortgage policy would mean higher mortgage payments but less interest overall. This flexibility is good for the borrower as they can take out a policy most suited to their needs.
Disadvantages of a Mortgage or Home Loan
There is no escaping the fact that with a mortgage you are taking on a large debt across a lengthly tenure. If you miss repayments there will be financial repercussions, the simple fact is if you do not keep up with your mortgage repayments your home maybe repossessed.If you plan to refinance at any point throughout the mortgage you may also encounter set up fees and penalties. Be sure to always read the small print on your mortgage agreement to avoid such charges.
What else do you need to be aware of when taking out a Mortgage?
The Rates - Which to choose variable or fixed?
Within the United Arab Emirates you can choose the rate that you would like to repay your mortgage. This can be either a fixed rate or a variable rate. The fixed rate offered by the bank will remain the same over a set number of years. A variable rate will change monthly inline with the market, this means your repayments can go up or down based on market fluctuations.
Do you have the Finances in place?
It is easy to see your dream home and then work backwards from there, however this is likely to cause you a few problems. The smart way to approach buying a house is to have your finance inplace first. If you have your mortgage pre approved this will speed up the buying process. Having a pre-approved mortgage will also put you in a stronger position to negotiate price and allows you to act quicker once you see the property you wish to purchase.To be accepted by the bank for a mortgage you will need to meet their minimum salary requirements. This mean you will need to produce a salary certificate and proof of finances during the application process. You will also have to provide other documents such as passport, visa and your emirates ID.
You must have the minimum down payment.
Since 2013 The UAE Central Bank have required that as an expatriate you must have a 25% down payment to purchase property. As a UAE National you require only a 20% down payment. As a note if you are an expatriate you are not normally able to run a mortgage policy that matures after you reach retirement age, you may only also purchase in selected locations with selected developers.
Consider All Costs
You will encounter various hidden costs during the mortgage process. The arrangement fee and the early settlement fee are potentially two of the biggest.
Your arrangement fee is a one off set up fee, it is common for banks to levy this charge or spread it across your repayments, this will depend on the bank and the home loan product chosen.
The Early Settle Fee relates to closing off your mortgage before the agreed finish date. The bank will often apply a penalty as they are lose money on the anticipated interest generated. The fee applied by your bank on early settlement will vary and you should check that if you are transferring your mortgage that the financial implications dont outweight the benefits of moving.
Approval of the Mortgage
Gaining approval for your mortgage is often what takes the most time in the process, however if you have all documentation in place things should go smoothly. There are a number of influencing factors that banks take into consideration, these can be how long have you been in the UAE, debts you have, your salary andwho is your employer. The Central UAE Bank set guidelines to protect the market for instability. They ensured that your monthly mortgage payment inclusive of debt repayments must not exceed 50% of your monthly salary.
Many banks will also lend on joint incomes and are more likely to if the other person involved is a partner or family
Like most other countries once approved you have three months before the mortgage offer expires. You are able to refresh the mortgage offer after this period but you may not always get the same rates and LTV as market conditions change.
Make sure you have all of the required documents.
- All banks will stipulate what documents they require to gain approval and these will normally consist of.
- A salary certificate and transfer letter from your employer.
- Financial History of the last 6 months, this means banks statements will need to be shown.
- Credit statements and proof of any outstanding loans or debt.
- A copy of your DEWA or Utility Bill
- Copy of your ID including passport, visa and Emirates ID
Credit Checks are now possible.
Financial Institutions are now using the Al Etihad Credit Bureau ( AECB ) to help approve or decline mortgage applications. AECB look at the last 2 years credit history for residents applying for loans and help banks to make better decision. A good or bad consumer report from AECB can help or hinder your chances of loan approval so it is always best to disclose all information accurately where possible.The mortgage process can take time, so do not let timescales cause you stress . It is possible to speed things up by paying off any debts and get all the documentation together to submit when needed.