Some Lenders Are Even Offering 0.8% Interest Rates On New Purchases, But What About Existing Mortgage Holders?

Even as the price of financing a house, purchase through a mortgage rises steadily. Payment plans of 1% per month are once again in full force as prospective property buyers in Dubai weigh their options.

Many buyers are participating in the 1% direct-from-developer deals, and some developers are even asking for less than 1 percent, according to an estate agent. A developer is providing a 7-year payment plan with a 0.8% deal. It will not take long for other people to join in now that the threshold has been lowered from 1%.

They will need to because end-user buyers will notice that the US Fed Reserve’s ongoing rate hikes are having an impact on their budgets. According to market sources, the most cost-effective way for new budget-conscious buyers to enter is still a combination of flexible repayment plans and 0.8–1.0% monthly installments.

Current Mortgages

What about those who already have mortgage payments made on their purchases of real estate? It would be wise for these buyers and UAE banks to consider refinancing their mortgages. According to Dhiren Gupta, Managing Director at 4C Mortgage Consultancy, “a few banks are introducing cutting-edge products to inspire the mortgage buyout process with minimal switching cost for the property owner.” The slightly challenging part begins after the property buyer decides to refinance. Undoubtedly, they should choose a lock-in period, but how long should it last?

Nowadays, banks in the UAE are providing rate lock-ins for one to five years. Fixing the mortgage rate for five years would be the obvious solution, preventing further rate increases from the US Fed. The disadvantage is that the rapidly increasing environment might not last forever. Leaving the mortgage applicant with a fixed rate while the rest of the market is experiencing lower rates. A little Catch-22.

Rate Differences

For one year, three years, and five years, UAE banks offer fixed pricing starting at 3.4%, 3.9%, and 4.49%, respectively. Additionally, there are variable rates linked to EIBOR starting at 0.49 percent (Emirates Inter-Bank Offered Rate).

Should I Make An Early Payment?

Gupta said, “It depends on personal preferences. When you have extra money, it makes sense to pay off a portion of an outstanding loan to speed up the repayment of the current loan. When making a partial settlement, it is ideal to shorten the loan’s term. By increasing the principal contribution toward the monthly installment, the total interest expense on the principal amount would decrease.

The majority of banks in the UAE have set a prepayment limit of 20–30% of the remaining loan balance with no additional fees. Any additional payments made before the agreement with the lender would be subject to fees equal to 1% of the amount already paid.

Mortgage applicants must make some difficult calculations, and none of the options is simple enough. Until the US Fed finally ends the current round of rate hikes, that is. The decision that new property buyers must make is whether to purchase directly from the developer. Moreover, accept the payment plans or to choose a mortgage. Buyers do have options because developers in Dubai are aggressively pushing the 1 percent payment plan. All of them, even 0.8%.

A Mortgage Refinance Prices

The current bank will incur an exit cost of either 1 percent or Dh10000. The majority of the time, the new lender will cover this expense in the liability letter and add it to the new loan amount. A valuation fee of Dh2500–Dh3000, exclusive of VAT, is charged.

The release of mortgage charges, which range from Dh1,290 for a conventional mortgage to Dh1,560 for a Sharia home finance, as well as new registration charges equal to 0.25 percent of the new loan amount, are all included in the mortgage registration fee charged by the Dubai Land Department. The cost might change. In Dubai, a trustee fee of Dh4200 is required. In Dubai, a new title deed would cost Dh580 to be issued. Most banks do not impose any processing or arrangement fees. After the switching process is complete, very few banks will refund your valuation fee and settlement fee, according to Dhiren Gupta.