Dreaming of owning a home in the UAE? Mortgages are key to financing your dream, but navigating loan options can be overwhelming. Picture used for illustrative purposes. Image Credit: Shutterstock

Dubai: Are you dreaming of owning a home in the UAE or investing in its booming real estate market? A mortgage can help you finance your property purchase.

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Mortgage applications are a rigorous process, so it’s important to understand your financial obligations before signing the application. To help you make informed financial decisions, the UAE’s Central Bank has provided a list of basic yet crucial questions you should ask your bank.


Understanding your mortgage obligations

According to the UAE’s Central Bank, a mortgage is a type of loan that is most often used to finance the purchase of property, such as a new home or an investment property. Applying for a mortgage requires meeting specific criteria, including minimum credit score, down payment and income level. It is also important to understand the different types of fees you may be subject to. For example, when it comes to a mortgage, the types of fees you may incur are legal fees, appraisal fees, administration fees, inspection fees.

The UAE Central Bank recommends these essential questions to ask your bank for a clear understanding of your mortgage agreement:

Loan repayment:

• How long will it take to repay the mortgage (amortisation period)?

Financial costs:

• What is the annual interest rate?
• What are the charges for obtaining the mortgage?
• What are the fees and charges if I miss a payment?
• What are the fees and charges if I change the payment amount?
• What are the fees and charges if I am late on a payment?
• What are the fees and charges if I change the payment due date?
• What are the fees and charges if I want to add a lump sum payment?
• What is the penalty amount if the mortgage is paid out before the loan’s termination date?

Renewal and fees:

• How much principal and interest will be paid at the end of the term of the loan?
• Are there any fees associated with mortgage renewal?
• Does the interest rate change upon renewal, and if so, when?

Why would I need to renew the loan? Understanding mortgage terms

The term of the loan is the length of time that the bank will provide you the loan. The mortgage loan agreement normally terminates at the end of this term, for example, one to five years, after which you may ask to renew the loan for the balance of the loan, pay it off or transfer it to another financial institution, according to the UAE’s Central Bank.

Mortgages for investment properties

If you are considering a mortgage for a rental property, the Central Bank advises ensuring that the rental income will be more than your costs including the cost of borrowing, any service fees on the property and the likelihood it may take time to rent the property.