Expert Eye: How to get the best mortgage deal in town

Expert EyeDhiren Gupta

Indeed, the current devaluation in property sales prices and the movement towards affordable housing projects are consolidating the mortgage market. 

Buying a first home is exciting; however, taking a mortgage will likely be a huge financial commitment especially when there are multiple products in the market. 

To help you demystify the process, here are some tips to consider when shopping for a mortgage: 

Basic understanding
When taking a mortgage for properties valued at Dh5 million and below, a UAE resident buyer can acquire up to 75 per cent loan-to-value (LTV) while a UAE national can get up to 80 per cent LTV of the sales price. The LTV applies to properties that are completed so the minimum down payment is 25 per cent of the property value. 

The thumb rule is that your monthly mortgage repayment should not exceed 50 per cent of your gross income. The amortisation is calculated based on the principal amount, mortgage interest rate and loan tenure. 

Debt-to-income ratioAs per the UAE Central Bank, a bank can consider only 50 per cent of the monthly income to ascertain the buyer’s loan eligibility. Considering principal, interest and insurance, it should not outdo 30-35 per cent of the total income. So, if your income is Dh12,000 a month, you must not spend more than Dh6,000 as debt monthly repayments.

Mortgage rates
There are two types of mortgage rates: fixed rate and variable rate. In fixed rates, the interest rate does not change during the tenure; in variable rates, it changes as per market instability. When the interest rate in the market increases or fluctuates, fixed rate is recommended. But when rates are abating, variable rate is ideal. 

Additional costs
Along with the property sales price, there are miscellaneous fees involved in home buying which need sound thought. Normally, it is 7 to 8 per cent more of the property value, which involves Land Department charges like title deed fee, trustee charge, mortgage registration fee, NOC fee and bank charges comprising life and property insurance cost, mortgage processing fee, market valuation charge and pre-approval fee. 

Before signing the mortgage contract, don’t forget to acknowledge all charges and latent penalties which apply to the loan. 

Enough savings
Indeed, a mortgage is a big financial obligation; however, there are more expenses associated with home buying such as house repair, utilities, furniture, décor and the like which need consideration. One should have at least four to six months’ worth of savings before considering home buying. One should always invest in such a manner that the investment amount matches at least half of the unpaid principal so in an adverse situation, it can be used to pay the outstanding amount.

Play safely
By taking some time to conduct research about the fundamentals of property financing, homeowners can save a substantial amount of time and money. The more you become informed and understand the process, the more buying becomes easier. And more likely, you will be able to buy a home that you can greatly afford.  

Also, having some understanding of the particular market where the property is located and whether it offers an inducement to lenders can add financial benefits. 

Certainly, expert guidance will steer you through all the products, but nothing will serve you better than knowing your buying objective and what you can ultimately live with.

Source: Dhiren Gupta, Special to Properties
Managing Director, 4C Mortgage Conultancy


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