Borrowers must understand all costs before taking out a mortgage

Published January 18th, 2016 - 06:28 GMT

There has been an increase in the number of UAE residents looking for home loans, says

The comparison website registered a 36 per cent increase in the number of visits on its home loan pages in 2015 compared to 2014.

There are over 70 home loans listed on Out of these, 33 are conventional mortgages and 37 are Shariah-compliant home finance products. We analysed our home loan database to know more about mortgage products in the UAE, and statistics and trends that would affect you as a potential borrower.

Eligibility criteria

Those with a monthly salary of Dh20,000 in the UAE meet the minimum salary requirement for 84 per cent of home loans available in the market. Findings from our analysis reveal 57 per cent of UAE home loans are available for those earning between Dh10,000 to Dh20,000 and 27 per cent for those earning Dh10,000 or lower per month (though minimum salary requirements for home loans start at Dh7,000 to Dh8,000).

Besides this, your eligibility for a home loan will also depend on a number of other factors, such as whether your company is listed or not, minimum length of service, etc. Banks offering home loans to self-employed individuals have a separate set of criteria such as minimum length of business, turnover, etc.

Salary transfer requirement is not mandatory for a majority of home loans in the UAE (84 per cent). However, 89 per cent of all home loans are only offered to those applicants who are working for companies that are on the banks' approved employers list.

Interest/profit rates and other fees

As per our research, 57 per cent of all home loans are offered at reducing interest rates ranging from three per cent to four per cent. Only about 11 per cent of the home loans are offered at rates lower than that, with the lowest rates starting from 2.94 to 2.95 per cent, based on reducing balance. Your mortgage repayments can be also calculated in a few simple steps with our mortgage calculator.

Besides the interest cost, there are various other fees and charges associated with home loans. Here are some of the important ones that you need to know:

- Arrangement fee: This is the one time processing or set-up fee which is usually about one per cent of the loan amount.

- Valuation fee: This fee is charged for valuation of the property and could range from Dh2,500 to Dh3,000 at most banks.

- Property insurance/Takaful: This could range between 0.03 to 0.06 per cent of the property value.

- Life insurance/Takaful: This fee starts from 0.35 per cent at most banks in the UAE. Many banks can also assign your personal life insurance policy to the mortgage, upon request.

- Early settlement fee: This fee is one per cent of the outstanding loan amount, subject to a maximum of Dh10,000 as per UAE Central Bank regulations.

Know home loan variants available

Nearly two-thirds of all home loans (64 per cent) are available for those looking to purchase an under-construction or off-plan property. But most banks will have their list of approved projects or developers for such loans.

Potential borrowers have the option to choose from fixed and variable rates on home loans. For loans with variable interest rates, the rate will vary with the market and your overall loan repayment may go up or down depending on how the rate changes. Under the fixed rate option, most banks fix the rate for one year up to a maximum of five years. Thereafter, the rate is variable. Our data suggests that 56 per cent of home loans in the UAE offer a fixed rate option.

After the recent announcement by the UAE Central Bank to hike its certificate of deposit rate by 0.25 per cent, it is possible that banks transmit this hike to borrowers which would make finance expensive. Mortgage borrowers are likely to be the most affected if there's even the smallest hike in rates. This means higher rates for potential borrowers to start with, and higher installments for existing borrowers who have a variable rate on their mortgage.

By Ambareen Musa


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