Home Loan in Dubai | Major Facts about Mortgage and its Rates

Dubai is one of the most desired places in the world; the name itself has now become an indication for luxuries and opportunities. Therefore, the trend of opting for a home loan in Dubai has been seen to catch growth. The economic stability, earning opportunities, and chances for the living standards to rise are few of the charms that attract people to move to Dubai. Numerous banks offer home loan in Dubai as the mortgage is a good option through which a person with a fixed monthly earning can own a property in the UAE. There are various facts and factors that contribute to the decision of whether or not to take a home loan in Dubai.

The upfront costs – Costs incurred at the time of taking a home loan in Dubai

Initially, the borrower is ought to pay 20-25% of the purchase price and an expat has to pay a minimum of 25% as down payment, as a rule laid by the UAE Central Bank. The lending institutions will only finance up to 75-80% as a home loan in Dubai.

In addition, a 4% transfer fee is charged with a 0.25% mortgage registration fee computed on the total amount to be funded by the lender. Generally, the real estate agent’s fee in the UAE is 2%, along with this, Dh2500 to Dh3000 will also have to be paid by the borrower.

This concludes that if you are planning to opt for a home loan in Dubai, you would have to incur an additional 6-7% to the purchase price. For instance, you would have to pay additional Dh120,000 to Dh 140,000 on a property worth Dh2 million.

Get the approval of your lender

It is mandatory to discuss your financial position and attain the approval of your lender before signing the sales agreement or before even initiating the search for a property. Your final decision of taking a home loan in Dubai is greatly influenced by the consent of the lender. If you pay the deposit before having the details discussed with the lender and subsequently if the lender refuses to finance, then you would lose your deposit.

First of all, the banks normally confine the mortgage so that the repayments do not exceed 25% of your monthly earning. Secondly, they consider your pre-existing monthly loan repayments like car loans, credit card bill, and etc. This helps them in gauging your repaying capacity so that the mortgage does not become a burden on you, and helps them in ensuring the repayment.

For salaried people, the maximum duration allowed for a home loan in Dubai can be up to 25 years. It’s the general rule that maximum duration of the loan minimizes the amount paid per month, but the accumulated interest amount is greater in long periods than in short periods. A penalty is charged if the borrower repays more than 10% of the principal amount for a specific period. This means that if you can afford to pay, you may pay additional amount under 10% at the year-end. This approach is advisable in the execution of a home loan in Dubai as it decreases the burden of the loan on the borrower.

The interest rates

The applicable rate of interest on a home loan in Dubai depends on the lending institutions. It ranges from 2.5% to 5% per annum. If opted for the fixed interest rate, the borrower needs to keenly consider the revision rate when settling the terms of the mortgage with the lender. The revision rate is the revised interest rate applicable when the fixed interest period expires – generally, it expires after 2 years. Though the monthly repayments remain constant in the fixed interest rate, the amount increases with a considerable gap when the rate is revised after the period expires.

Fixed interest rate vs. Variable interest rate

When planning to opt for a home loan in Dubai, the borrower is exposed to two types of interest rates.

1- Fixed interest rate

The fixed rate describes a condition where the rate of interest remains unchanged, resulting in constant monthly repayments for the borrower. Normally the lending institutions offer 2 to 5 years of the fixed-term after which the rate is revised. The borrower faces less financial difficulties in fixed interest, as the monthly budget planning becomes predictable. On the contrary, if the loan duration extends up to 5 years, the borrower would end up repaying a much greater amount as interest in the fixed term. The fixed term is advisable for shorter loan periods.

2- Variable interest rate

In contrast to the fixed rate, in the variable rate, the interest rate charged to the principal amount varies according to the changes prevailing in the market. The present market interest rates affect the borrowing rate for a home loan in Dubai, thus the amount repayable also fluctuates with the increase or decrease of the market interest rates. The borrower might end up paying higher than the anticipated repayable loan amount if the market rate increases, and he might pay lesser if the rate decreases. Therefore, it is advisable to opt for the variable interest rate for a home loan in Dubai if the market trends depict a decrease in the future rates.

Re-mortgaging or Re-financing

This is an option available to the borrower while the duration of a home loan in Dubai. It refers to changing the lending institution to obtain better offers and lower interest rates. Though the borrower benefits with lower rates, it must not be neglected that the relations with the previous lender would be compromised to a great deal. A borrower must not switch his lender if the relationship is healthy enough to bear the leniency in the repayments.

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