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What Is Mortgage Loan

A mortgage loan is a type of secured loan where you can avail funds by providing your asset as collateral to the lender. This form of financing helps the borrower to avail high loan amount and prolonged repayment tenure.

 

A mortgage is usually a loan sanctioned against an immovable asset like a house or a commercial property. The lender keeps the property as collateral until the borrower repays the total amount.

Mortgage In UAE

The United Arab Emirates has become an increasingly popular business and investment destination for expats, especially in business-friendly emirates Dubai and Abu Dhabi. 

 

In recognition of this trend, the mortgage market in the UAE is well-established, with international and local lenders offering home loans to expats, i.e., both buy-to-let mortgage and residential mortgage. The loan criteria, however, may differ from lender to lender and borrower to borrower.

Features & Benefits Of Mortgage Loans In UAE

Below are the few popular features & benefits of popular Mortgage Loans products in the UAE.

 

– There are two kinds of mortgage loans provided by most of the banks in the UAE, i.e, Fixed Mortgage Loan and Variable Mortgage Loan.

– Getting finance while buying a property is ideal as investors who purchase their property through mortgage opt for a long-term commitment. This ensures smaller monthly premiums and more time to pay off the loan.

– Deposit amount or down-payment is linked to mortgage agreement and property type and will vary accordingly.

– Investors can also opt to re-mortgage the loan if they want. Term re-mortgaging refers to the change in the loan agreement so that the investor can take advantage of better loan options or promotional rates.



Types Of Mortgage Loans

In the UAE, one can get a mortgage on a variable rate or a fixed rate basis. These loans come with different mortgage interest rates. However, they all require a small percentage of the total price to be deposited as down payments. The rest of the portion is paid over some time through equal monthly installments (EMI)

Fixed-Rate Mortgage Loan

This is one of the most commonly offered mortgage types. As is evident by the name, this mortgage loan has a constant fixed interest rate throughout the loan tenure, which can be anywhere between 1 and 5 years.

Variable Rate Mortgage Loan

It is also one of the traditionally used and well-known mortgage types with variable interest rates. The loan tenure is usually 25 years or before you turn 70, whichever comes first. Interest rate is derived by calculating bank margins and EIBOR rate (Emirates Inter Bank Offer Rates).

Discounted Rate Mortgage

Here you are offered a discount with a specified percentage by the borrower during the first few months of the loan term.

Capped Rate Mortgage

This one is slightly similar to the Variable Rate Mortgage, as the interest rate is not fixed; however, you agree on a maximum rate of interest before the loan period starts. Whatever changes happen in the market, the interest rate won't exceed the agreed-upon maximum limit. This capping is limited to the initial few years (generally up to 5 years), subject to negotiations with the bank.

Remortgage

Also known as Refinance or Top-up loan in UAE, such a type is perfect if you already applied for a loan and need an extra one during the ongoing loan. Top-up will be subject to a market value of the property.

Offset Mortgage

Offset mortgage allows you to connect your loan, savings, and credit accounts together. Consequently, the total interest amount gets reduced whenever you keep extra money on any of the accounts.

Who Can Opt For A Mortgage Loan In The UAE?

The residents can obtain a mortgage in the UAE; however, they must meet an eligibility criterion.

– You should have been for six months or a year at your current job 

– For business owners, your business should have been operating for two years

– Non-residents can also avail mortgage from leading banks to buy property in UAE by following with simple documentation process.

– You should have a clean credit history to get your loan easier as this shows that you’re a trustworthy person

– If you didn’t have a credit card before, you should think about having one and start using it. Just make sure to pay it every month on the due date to create a clean and strong credit history. 

Documents Required For Mortgage UAE  
While applying for a mortgage, the required documents may differ depending upon the bank. The lenders may ask you to present the following documents.  

1.Salaried Individual
  • Salary Certificate 
  • Last six months bank statement
  • Last six months pay-slips
  • Passport Copy
  • Emirates ID copy

2.Self Employed
  • Trade License
  • Audited Financial Statements
  • MOA of the company
  • Share Certificates (in case of Free Zone Company)
  • Last six months company bank account statements
  • Last six months personal bank account statements
  • Passport and Emirates ID copy

3.Non-Resident Individuals
  • Passport Copy
  • Last three months of bank statement

Mortgage Loan: Step-by-Step Process

 

While your FinBuddy will be there at every step in helping you get your dream home or property, the following are the major steps to obtain a mortgage

 

– Choose whether dealing with a bank directly or indirectly through a broker

– Pick the mortgage option that suits you

– Get a mortgage agreement in principle or a letter that proves their acceptance

– Search for the unit you want and reach the optimum deal 

– Upon settling on a price, pay the deposit to confirm the purchase and the completion date 

– The bank or loan lender will pay the amount by the completion date. 

Mortgage Calculator UAE

 

A mortgage calculator is a service or a feature that is available on different websites. It enables you to estimate the monthly installment you will pay according to the mortgage loan you want to have. 

To make all the calculations, the applicants have to enter the home price, down payment amount, rate of interest, and loan tenure in the calculator. The result shown will be the amount that the applicant will have to pay every month. It’s a good step before you start the mortgage loan procedures in the UAE to be aware of all the details before making the decision. 

Repayment Of Mortgage In The UAE

 

Repayment mortgages are the main type of home loan in the UAE. These deals involve paying a set amount each month for the duration of the mortgage term. You will usually pay by setting up a direct debit from your bank account on the same date each month.

 

Interest-only mortgages are less common. These involve paying just the portion of interest each month and then paying off the whole principal amount at the end of the term. As these loans are risky, they are often available with terms of five years only.

FAQ’s

A flat rate is applied to a loan when the annual interest on the loan is set at the beginning of the period and remains the same throughout the payment cycle. On the other hand, if the loan is agreed based on a reduced rate of interest, the payment plan would be slightly different. The principal amount is reduced with each payment, which means that interest being paid also goes down gradually.

A security cheque is a type of guarantee required by every bank in the UAE, especially when they provide any type of credit facility, including credit cards, personal or car loans, or mortgages.

An Early Redemption Penalty is a charge you may be required to make to a lender if you pay off a loan or mortgage before the scheduled term of the credit facility, also sometimes referred to as a Redemption Penalty.

LTV is a risk assessment ratio that is used to manage risks associated with lending against an asset. It refers to the percentage of the value of the asset that can be given as a loan.

This is dependent upon the bank from which you have obtained the home loan. Usually, the banks have a maximum allowance of 50% of the remaining balance when taking the mortgage loan. In case you are on a fixed mortgage, in a few situations, the bank will let you make over-payments after the end of the fixed-rate period.

Land department charges while buying a property are as follows:

  • Transfer fee – 4% of the property value
  • Mortgage Registration fee – 0.25% on the loan amount
  • Trustee Fee – AED 4000 (Applicable for Trustee Office)

Maximum tenure available for home loan or mortgage in UAE is capped to 25 years for residential properties and 15 years for the commercial properties 

The maximum age limit for getting a home loan or mortgage loan in UAE is as follows:

  • 65 years for salaried individual
  • 70 years for a self-employed individual
  • 70 years for UAE Nationals or Emiratis
  • 65 years for non-resident individuals

UAE offers some of the best real estate investment opportunities in the world, and non-residents can avail loan or mortgage, provided they meet all the qualifying criteria.

This is a mandatory requirement in UAE. Mortgage Life Insurance is a form of life insurance specifically designed to protect the repayment of mortgage (balance amount) in case of the policyholder’s untimely death.

 

Property insurance protects the borrowers from any loss or damages due to unforeseen incidents such as fire, explosion, lightning, or earthquake. 

Independent valuation gives the lender/buyer unbiased confirmation of the property value. The valuation also helps the lender know any features of significant defects which could impact the market value property later. 

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