Here’s all the mortgage advice you need to know

Dreaming of owning a property in the UAE? It could be a reality, but first you’ll need to secure financing – and here’s what you need to know

Following the recent Cityscape Abu Dhabi real estate show, many potential homeowners will now be looking to secure a mortgage for their new property.

But as with many financial processes, it can be overwhelming just knowing where to start, from finding the right type of mortgage for you to understanding the rates.

“A home mortgage is a once-in-a-lifetime decision and banks need to provide end-to-end products suited to your needs,” explains Girish Advani, head of assets, retail banking, Noor Bank. “There are central bank regulations around home mortgages here. For UAE nationals, up to 80 percent of the property value is the maximum finance to be given. For UAE residents, we go up to 75 percent of the property value; the customer pays the remainder as a down payment.

“There are different types of home mortgage finances. If you are buying the property for self-use, we do a property purchase finance. If you have an existing property that you bought in cash and you just want to take some cash out of it, that’s equity finance. The customer can also transfer finance from other banks; this is called buyout finance. It can also depend on the property status; we also offer off-plan financing.”

In the UAE, only banks and non-banking finance companies (NBFC) can offer home financing, meaning most people will head straight to their regular bank to secure a mortgage. But remember that this doesn’t have to be the case and it’s still worth comparing what different banks can offer, including conventional and Sharia-approved

financing options.

Understanding rates

Generally, the biggest misconception homeowners have about their home financing comes down to the rates.

Most banks will offer variable profit rates. These can be determined by the bank itself or can be based on a benchmark rate provided by the Central Bank of the UAE, known as Eibor, the Emirates Inter Bank Offered Rate. Girish advises looking for banks that benchmark their financing based on Eibor rates, as they are more transparent.

But rather than focusing too much on the rates, Girish stresses the importance of looking at the overall plan. Many banks pull you in with a promotional offer but when the rate increases after a few years, you might just get the shock of your life, which is why it’s important to understand what you’re signing up to.

“Many providers on the market will offer an initial low rate for one or two years and then the rates will go up after that. Look at the entire lifespan of the finance you are taking and what rate you are being charged.”

Remember as well that if you end up with a finance that you’re not happy with after a few years, you have the option to switch to another bank through a buy-out process.

It’s not just about the mortgage itself, either. Along with your financing, you should take out life insurance so that in the case of death, the insurance company will cover the remaining mortgage payments and the bank will hand over the property to your successor.

“Don’t compromise on your life and property insurance, it’s just not worth it,” Girish adds. “It’s mandatory for peace of mind to have good coverage in times of uncertainty.”

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Top tips

Think long term and take your time

A house will stay with you for a lifetime. This is not a quick decision so be sure to do your homework and make sure you’re happy with your decision.

Look at the overall picture

A promotional offer may include a fixed period with a low rate initially. Remember that this is likely to increase down the line.

Ask questions

Don’t be afraid to ask your bank for clarification of terms and be sure everything is explained to you in detail before you sign on the dotted line.

WORDS Rachael Perrett