Mortgage definition and how it works

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Dubai is a great city for people who are looking for a luxurious life in a modern city. To professionals, business owners, families, etc., Dubai offers an excellent living experience. Dubai’s real estate sector offers numerous options for both home buyers and rental accommodation seekers. If you are planning to live in Dubai for a longer period of time, then buying a home makes financial sense. Unless you have been a big saver or ran into some money, you will require some financial assistance to buy a house – a mortgage.

A mortgage is a loan given by a bank or any private lender to help you purchase a real estate property.

In this article, look at the various types of mortgages available in Dubai and also at how a mortgage works.

Types of Mortgages in Dubai

In Dubai, the mortgage market is well-developed with numerous mortgage providers offering different products and features. In Dubai, you can apply for a mortgage to buy an apartment for living purpose or even as an investment. However, this might change the amount of deposit the lending institution asks you to pay. For example, an individual buying an investment property might be perceived as a greater risk by the lender. In such cases, the investor will be asked to deposit a comparatively higher amount.

Here is a rule that you must know:

In Dubai, as an expat buyer, the full amount that you will repay (principal + interest) cannot be more than the total amount that you will earn in seven years.

With this rule clear, let’s talk about fixed and variable interest rates.

Fixed rate mortgages guarantee that the rate of interest on your mortgage will be fixed regardless of the change in rates in the market for the duration of the agreement. This duration is usually five years. After this period, the mortgage reverts to the rate set by the bank. On the other hand, in a variable rate mortgage, your interest rate changes with the changes in the market.

You must decide which rate you are comfortable with. Both fixed and variable rates have their own pros and cons. Research them well and choose judiciously.

Also Read: Real Estate? What it is and how it works

Some lenders also offer Interest Only Mortgages under certain conditions and offering specific features. Usually, the tenure of such mortgages is not more than five years. In these mortgages, you pay only the interest for the tenure of the loan in fixed monthly instalments. After the end of this tenure, you are expected to pay the principal in a lump sum or start making repayments towards the principal. You can refinance your home to make the lump sum payment. However, if you start repaying the principal, then the overall amount you pay will be much higher than a regular mortgage. Usually, people opt for such mortgages when they are certain of selling their home in the near future or have invested their money somewhere else where the returns are much higher than the interest rate of the mortgage.

Remember, there are many different variants available in the market. You can talk to a real estate specialist to help you find the mortgage best suited to you.

You can either approach a bank directly for a mortgage or avail the services of a broker. While a broker might charge a small fee for his services, he will ensure that the entire process is smooth and according to the regulations.

Banks and financial institutions can have their own terms and conditions for offering mortgages. Therefore, it is important to check all the terms and the schedule of charges carefully before applying for one.

Documents

Again, every lender can have a different requirement. Here is a quick list:

  • Personal Identification Document like your passport (copy)
  • Proof of legal residence in Dubai
  • Proof of your current residential address
  • Bank statements
  • Salary Slips
  • Tax returns
  • Letter from your employer
  • Relevant documents to prove that you can afford the mortgage

Talking about affordability, in Dubai, your combined debt payments (all loans, credit cards, etc.) cannot be more than 50 percent of your income.

Fees and Charges

Apart from the deposit, you will also have to factor in the following fees and charges associated with availing a mortgage:

  • Registration of Mortgage Fee – usually, 0.25% of the mortgage value
  • Processing fee
  • Property Valuation fee
  • Insurance Registration fee
  • Loan protection insurance premium, etc.

There are many other costs involved. Ensure that you make a comprehensive list of costs and prepare yourself for it before applying for a mortgage.

The process of getting a Mortgage in Dubai

  • Find a mortgage that suits your requirements
  • Find a local lawyer to help with the transaction
  • Submit all documents to the bank/lender to get your loan pre-approved
  • On receiving a confirmation in writing, start looking for a house within your budget
  • Once you finalize the property, pay a deposit to the seller to secure the transaction and agree on a completion date
  • Approach the bank/lender again and submit all the documents required to confirm your mortgage and receive a disbursement

Also Read: Real Estate and Its Future – 2018

We understand that buying a property is a huge decision, buying it in a new country can be intimidating and overwhelming. However, take heart from the fact that thousands of people from different countries have invested in Dubai property. Therefore, the banks, administrative offices, brokers, and everyone involved is comfortable in dealing with foreigners. Just do your research well and plan your finances meticulously. Remember, with the right amount of planning, buying a house in Dubai would be easier than you ever imagined.

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