Our Guide to Mortgages or Home loans in UAE
Souqalmal.com allows you to search and compare over 45 home finance products from UAE banks and mortgage providers. Considering a mortgage is a long term commitment, it is important take time required to do your homework and find out the different take the right product for you and our home finance section gives you detailed information about the minimum salary requirement, upfront fees, maximum mortgage finance amounts and a lot more to help you with your search.
Things to consider before taking a home loan in the UAE?
Considering there are over 45 mortgage products in the UAE, how do you choose and what are the various elements that you need to understand and at times will also dictate what product you are eligible for.
1. Fixed rate vs variable rate - The UAE market offers two types of mortgages and you would need to choose what you consider the best option for you. There is a fixed rate home loan where the banks offer you a fixed rate for a set number of years and there is the variable rate which varies with the market rate which means your repayments can change as the rate changes.
2. Finance amount you require - Once your purchase price is set, you need to look at the mortgages that will provide you with the amount you require. It is important to mention that banks always send a valuation committee to evaluate the house you selected and accordingly set the price they consider as appropriate. The home loan amount offered to you is not necessarily the total value of the house you chose. You would need to negotiate with your bank the valuation price and accordingly pay in cash the difference in amounts on top of the required down payment amount.
3. Down payment – As part of setting your budget for a house, you would need to consider the down payment that would be required by the bank. Down payment on a property in the UAE is a requirement and varies based on whether you are a UAE National or an Expatriate and whether it is the first house you are buying or the second.
4. Minimum salary requirement – Each bank sets a minimum salary they require for you to be eligible of the mortgage.
5. Islamic finance - There are approximately 30 different mortgages in the UAE offering Sharia Compliant home finance products. Make sure that you search by “Islamic Finance” on Souqalmal.com to view only the Islamic products
6. Arrangement fee/ Set up fees - There is a one-time processing fee on your mortgage and this fee differs based on the bank and the home loan product you choose.
7. Flat vs Reducing balance rate - The rate calculation on a mortgage can be calculated in two ways. The first method, the Reducing balance method charges you a rate based on your outstanding balance. The second method, the flat fee charges you a rate based on your principal amount for the duration of the term. A mortgage is advertised as either a reducing rate or a flat rate so make sure that you are comparing all reducing rates or all flat rates and do not mix them up. You can now compare both rates on Souqalmal.com and the general conversion rate used to convert a flat rate to a reducing rate is to multiply the flat rate by 1.814 (this is only an estimate)
8. Pre-payment fees or early settlement fees on your home loan –Tenures range on mortgages and sometimes banks will dictate the period you can pay your mortgage based on the instalment amount and your debt burden ratio. If you plan to pay your loan over 25 years but then decide to pay it earlier, then it is important for you to compare the early settlement fees applied by the different banks or mortgage providers. Make sure you understand what fee applies when you decide to pay part or full payment from your own funds in cash or whether you are moving your home loan to another bank.