Considering a mortgage or a home loan is a long term commitment, it is important take time required to do your homework and find out the different options available. 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?
1. Fixed rate vs variable rate: There are two types of mortgages and you need to choose what you consider the best option for you. With fixed rate home loans, the banks offer you a fixed rate for a set number of years; with a variable rate, the rate varies with the market rate, which means your repayments can change as the rate changes. [Related: EIBOR, Libor – what does it mean?]
2. Finance amount you require: Look at mortgages before you look at properties. You should ensure you have pre-approval from your bank for a mortgage – this will put you in a stronger position as a buyer – but the bank will also insist on doing a valuation of the property you choose, to ensure they feel the price agreed is in line with the market value. Normally they will accept no more than a 10 percent variance between what they feel the property is worth and the price you have agreed with the seller.
3. Down payment: As you organize your property budget, you need to check what deposit/ down payment is required by the bank. Down payment on a property is a requirement and varies depending on whether you are a national or an expatriate and whether it is your first property or you are an investment buyer. [Related: Mortgage caps in the UAE]
4. Minimum salary requirement: Each bank sets a minimum salary they require for you to be eligible of the mortgage.
5. Islamic finance: Instead of simply lending a customer money to purchase a new home and charging interest on that loan, which is what happens in conventional banking, an Islamic home finance product might see the bank buy the property on behalf of the customer and then re-sell it to them at a profit. The buyer pays the bank back through monthly installments. [Related: A guide to Islamic home finance]
6. Arrangement fee/ set-up fee: There is a one-time processing fee on your mortgage and this fee varies depending on the bank and the home loan product you choose.
7. Flat vs reducing balance rate: The rate calculation on financing 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. [Related: Flat rate or reducing balance: 18% could be more expensive than 24%]
8. Pre-payment fees or early settlement fees on your home loan: Tenures range on mortgages, and sometimes banks will decide the length of time you have to pay off your mortgage based on the installment amount and your debt-burden ratio. If you plan to pay your loan over 20 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. Generally as an expatriate you cannot have a mortgage tenure that would take you past the age of retirement. Make sure you understand what fee applies when you decide to make an early settlement, partially or in full, from your own funds in cash or if transferring your home loan to another bank (early settlement fees are more likely to apply if moving a mortgage rather than closing it out in cash).