Understand your mortgage
Make sure to understand all fees tied to your mortgage. It is particularly important to know the early settlement or transfer fees that some banks use to lock you in, as they would reduce the savings in moving your mortgage.
The UAE Central Bank has now introduced a rule that in order to transfer your mortgage, the penalty to exit your existing bank is 1 per cent of the loan amount or Dh10,000 — whichever is lower. It is worth searching across the market if you haven’t changed your rate for more than three years.
If you are looking at moving your mortgage to a new bank, check all the terms. For example, are you able to make additional payments without a penalty? The headline rate doesn’t always have the best terms so go through all your options before signing anything.
Leverage your network
Speak to family, friends and colleagues about how they got their mortgage and the offer they received, and consider their recommendations.
Speak to a broker
Mortgage brokers have access to all the banks and for a nominal fee they will be able to give you impartial advice on the best products and compare lenders for you. Most brokers will also guide you through the whole property transaction and take the stress away from you having to deal with the banks directly. Mortgage brokers will also offer exclusive promotions from banks that you wouldn’t get if you went directly.
Keep liabilities to a minimum
A key factor in determining whether someone can afford mortgage is their debt-to-burden ratio, calculated by the bank by adding all their existing liabilities, which should not exceed 50 per cent of the monthly salary. Additionally, 5 per cent of all credit-card limits is added to the tally as well because banks calculate a borrower’s affordability based on their limits and not the outstanding balance.
If you have a lot of credit cards, then it is worth considering either reducing or cancelling some of these before taking out the mortgage.
Check rates after the promotion
Most banks offer a good introductory rate in order to gain business but it is important to understand what the rate will be when the promotion ends. Always check what the revert rate will be and how it is calculated.
There is always a fixed element but the variable part is calculated either based on the Emirates Interbank Offered Rate, or the bank will set the rate. Also, a lot of the banks set a floor rate, which is the minimum that the rate will be set to and will never go below it.
Deposit and fees
Fees in the UAE are payable upfront and on top of the deposit, it can be range from 7.5-8 per cent. When buying a property, the real estate agent will ask for a 10 per cent deposit upon signing the memorandum of understanding, which is the contract between the seller and you. This deposit is usually held with the agent and not cashed but exchanged for a manager’s cheque on the day of transfer.
As an expat, for any property up to Dh5 million, you will need a 25 per cent deposit and for anything higher than Dh5 million, you will need a 35 per cent deposit. For secondary homes, you will need a 40 per cent deposit.
If you are willing to transfer your salary to the bank where you are taking out the mortgage, you may get preferential rates and terms.
This is now an easy process and will require you to get a salary transfer letter from your employer and new bank details so this can be actioned. If you have a personal loan with your existing bank then it is unlikely that you will be able to transfer your salary until this is paid off.
Get offers in writing
Banks try to win your business by promising things that sometimes can’t be delivered. Ensure when you get offers that everything is put in writing as this commits the bank to the product.
Do the numbers
Calculate how much you would save with your new mortgage. Include all fees related to switching to another provider. A broker will be able to help you with price comparisons.
Review your mortgage at regular intervals. The bank you have your mortgage with will want to keep you as a client so speak to them first to see what rates are available for you. Usually an annual review is sufficient.
— The writer is General Manager of the Mortgage Division at Holborn Assets in Dubai