It is rare these days that anyone stays with the same lender for the full duration of the mortgage term. Remortgaging, replacing your current mortgage with another, is becoming increasingly common.
The most popular reason is to secure a more competitive interest rate, or switch to a scheme that the borrower considers more favourable, such as one where the interest rate is fixed for a period of time. Other reasons include a transfer to a scheme that does not penalise for making overpayments or early redemption, to raise further capital or to consolidate more expensive shorter term debts.
The ability to remortgage is very much based on an individual’s circumstances and there are often significant costs so the home owner has to carefully consider if it is worthwhile. Before reviewing the alternatives it is a good idea to contact your existing lender and see if they have any offers or alternatives deals that are available. Occasionally a lender will reduce an interest rate for a good borrower that they are keen to retain and that should be much cheaper and a lot less hassle than remortgaging.
The options for expats and UAE or GCC nationals are not always the same and each mortgage lender has their specific criteria so you need to do a careful comparison and consider the following as well as the headline interest rate.
Do you have enough equity in the property?
Just as a deposit is required when you buy a property, you need to have a certain amount of equity in order to remortgage. Many people have seen the value of their property fall in value in recent years, so you may have less equity now than when you bought it and be unable to remortgage at this time.
Is the property on the lender’s list?
Unlike in many other countries, in this part of the world, lenders will not accept just about any property in the country as security for a mortgage. Each has a list of both developers and developments that they will consider so this is the very first thing to check out.
Redemption penalty from existing lender
These will vary, but should be stated on the mortgage agreement that you signed and accepted at outset. A few lenders don’t have an exit penalty, but others charge as much as 5% of the outstanding mortgage. There may also be a fixed fee. There are some lenders who promote 0% early settlement fee but you need to check that this is not necessarily for a remortgage but only for cash settlement. Find out more information on early settlement fees from the different providers.
Set up costs
These can include arrangement fees (often more than one with different names), the cost of a valuation, legal costs and a fee for registering with the land department. The amount can be considerable and you may be asked to pay this upfront.
Are there are other issues to consider?
Each lender has its own requirements and some will ask for your salary to be paid to a current account with them, others will insist on arranging life cover whether you want them to or not. Not all will allow mortgages to be set up on an interest only basis.
Thus far, I have referred to mortgages in the GCC region, but if you are an expat with a property in your home country, or elsewhere, you will still usually have the option of remortgaging that property even though you are living overseas. It may be helpful to use a specialist mortgage broker to assist you, as they will have an understanding of the market, know which lenders will assist non-residents and will mortgage a property with tenants. It can also be helpful to have someone to handle the paperwork if you are not on the ground.
Keren Bobker is an Independent Financial Adviser at Holborn Assets and writes at financialuae.me