5 Important Factors You Should Consider When Looking For A Home Loan
When looking for a mortgage, it can be overwhelming to decide where to start, what to look for, and ultimately choose the right lender and mortgage. This is especially true for first-time home buyers, but it may also apply to seasoned buyers who are new to the UAE.
There are more than 15 banks operating in the United Arab Emirates, and each of them offers a wide variety of home loans with different interest rates, characteristics and criteria.
It is important that you do your research before applying for a home loan. It is common for borrowers to contact their own bank with which they hold their main account first before looking elsewhere.
Often times, they tend to go with their own bank as this is considered to be the easiest option. However, it can’t always be the best.
There are some important aspects that you should consider when looking for a home loan.
For many people, the most obvious starting point is prices. You should first decide whether you are going for a fixed or floating rate product. Review both options, taking into account your long-term goals and the current market situation.
A fixed-rate mortgage is better for those who want more stability to know the monthly repayments for a specific period of time. Term mortgages typically have a term of one, three, or five years. A
A variable rate mortgage could be an option if you are less risk averse and want to take the risk of getting a lower rate that moves with the market.
A fixed-rate mortgage is better for those who want more stability and know what their monthly repayments will be over a period of time
After you have decided between a fixed or a variable interest rate, take a look at the mortgage rates on offer.
Prices in the United Arab Emirates can vary between 1.99% and 5% depending on the lender, product, and your circumstances.
Take a look around to see what different tariffs are on offer. Remember that the lowest price doesn’t always mean the best product.
Check the reversion rate
The only aspect that many borrowers forget when looking for a mortgage is the rate of reversion.
The reversal rate only applies when taking out a fixed-rate mortgage. It is the interest rate that the mortgage reverts to when the time limit ends.
When comparing two different fixed-rate mortgages, it is important to consider the reversion rate. It is often the case that the prime rate on mortgage loans attracts a borrower’s attention when it looks very competitive on the surface.
However, it is necessary to take into account the relapse rate and how it is calculated as it will give you an indication of what your rate could be after the time limit expires.
Adding purchase fees to the mortgage
When buying real estate in the United Arab Emirates, fees of up to 7 percent are incurred in addition to the minimum down payment obligation of 15 percent for citizens and 20 percent for residents.
These include Dubai Land Department fees, real estate agent fees, and bank fees.
When buying in Dubai it is possible to include a percentage of these fees on the mortgage.
That means reducing the upfront cash required for the purchase as the lender takes a portion of the home loan fees and allows you to repay them over time as part of your normal mortgage repayments.
However, not all lenders will allow the option to include fees. You need to determine early on if this is something you want to do and take this into account in your research.
One question to ask yourself in your research of all lenders is whether the mortgage requires a salary transfer. Some lenders charge a wage transfer for certain mortgage rates or offer you a reduced rate if you choose to.
Whether or not you prefer a salary transfer is a personal decision, but I generally advise clients not to do so in order to maintain control and flexibility over their finances.
Rules for overpayments
When talking to prospective borrowers, getting the mortgage off as quickly as possible is a common theme and it is worth checking out if a lender allows penalty-free overpayments.
Some lenders penalize a borrower for paying off the mortgage faster than the agreed term.
If you are planning on overpaying the mortgage, look for a lender who will allow you to do so without incurring a fee.
Many lenders will agree to allow overpayments of up to 20 percent per year with no penalty, some as much as 30 percent.
Brendan Kennelly is a Senior Mortgage Advisor at Mortgage Finder