By the time you read this, you are probably acquainted with the housing market of Dubai by now. Most home buyers are residents of Dubai who have already rented or shared a house when they first arrived here. As you start to settle in the Middle East, investing in a property makes more sense. For starters, check mortgage plans in the market, create a base budget, search properties based on your preferred location, identify 2-3 potential ones based on your affordability and apply your approved mortgage plan to complete the transaction. Mortgage is a long term commitment and hence it’s best to compare as many offers before signing off on the papers. First understand what works best for you in the near future and the long term.
Interest rate: Banks offer mortgage interest rates in fixed or variable kind. The fixed rate on your mortgage is set for a definite number of years while a variable rate changes with the market rate. When the economy is somewhat unpredictable, a fixed rate seems like a safe bet where you do less monitoring of interest rates. Long term, high amount mortgages affect borrowers the most due to rise in interest rates.
Interest rates can be also calculated on the changing amount of the principal. In the reducing balance method, interest is charged on your outstanding balance after each installment paid. In the flat rate method, interest rate does not change for the entire term of the mortgage. Most home loans are offered at 3-4% rate on reduced balance. Very few mortgages are offered at rates lower than that, from 2.94-2.95 per cent, based on a reducing balance.
Eligibility: Although the banking industry is heavily driven by customer centric offerings, they need to know their borrowers well. Most banks will specify the lower limit of salary requirement, minimum length of service and check whether the borrower works for a company which is listed with the bank. The latter is one of the most important criteria to avail a home loan.
What an expat must know
What’s not covered under mortgage: As per UAE Central Bank rules, expats must pay a minimum deposit of 25 per cent of the purchase price for properties sold for less than Dh5 million. In Dubai, in addition to this down payment, you'll pay 4% transfer fee plus a 0.25% mortgage registration fee calculated on the loan amount. Also added are 2% real estate commission, a valuation fee of Dh2,500 to Dh3,000 and often a loan establishment fee of up to 1% of the loan amount. As a relief, some banks are now allowing mortgage borrowers to add three-quarters of these purchase fees to their home loan.
Why mortgage pre-approval is so important: Having a pre-approval makes budget planning easy before you start looking for a property. The standard practice is to give a cheque for 10% of the purchase amount before signing a sales agreement. In case your bank turns down your application for financing and if you want to back off from the agreement, this 10% may not be refunded back to you.
All these variables involving financial aspects may turn out to be risky for an investor if they don’t understand the business of property buying. Hence, hiring a professional mortgage broker who can advise investors on the most suitable option will help them in saving both, time and money. Some of the top rated real estate agencies also provide services that help buyers find the best mortgage options and expert brokers.
There are plenty of online portals that offer you tools to calculate your mortgage and also to compare plans by different banks and financial institutions. So before you begin to look for that family villa, make sure your mortgage plan is in place and that you don’t overstretch your budget. Take professional advice from a reputed broker and ensure your new abode is the happy place you always aspired for.