Mortgage: Fixed and adjustable rate terms

Ask the agentDhiren Gupta

I plan to take a mortgage and was advised to go for a fixed rate. Can you please guide me on the fixed and adjustable rate terms and their impact in the long term?

In the mortgage repayment structure, fixed rates are interest rates that do not change during the loan tenure, whereas adjustable rates are rates that are allied to an index or benchmark rate; hence, can be changed over time.

In fixed rates, borrowers know the exact payment amount; therefore, they have an easier time doing their personal budgeting regardless of whether the rates rise or fall. When interest rates go up, a fixed-rate mortgage is recommended. But when rates fall, borrowers should opt for an adjustable mortgage rate as it keeps on changing at regular intervals, thus allowing the borrower to capitalise on new, lower rates.

The factors which may affect your decision are when you consider how a higher monthly payment would impact your budget if rates increase and the length of time you plan to stay in your house. Assuming the current market trend, you can go for a one or two-year fixed rate then have adjustable rates in your repayment structure.

The mortgage repayment is grounded on your precise requirement and depends on your future plans for the property, your current and future fiscal plans and others. Select the best option as per your requirement.

I own a villa in Dubai which is still on mortgage. I am moving to Canada with my family and I do not want to sell it. Can I continue to pay the mortgage?

In your case, it would have been mentioned in your loan agreement. Generally, lenders mention a clause with regard to the relocation of the applicant. UAE lenders are very complacent in such cases and as per the UAE law, you should notify your lender about your relocation plan. The main concern would be that with your relocation, your profile would change. If your case is evaluated as a high-risk obligor based on your relocation plan, then the lender would restructure your current loan as per non-resident lending parameters, wherein you would need to provide the lender with details of new employment along with necessary documentation and security cheques. It becomes a little complicated with banks which do not have non-resident product. Discuss the case with your mortgage consultant.

My business partner and I have a few properties in UK and are looking to buy in Dubai through a mortgage. Can we get a mortgage on a ready property?

Yes, you can buy any property in Dubai as a non-resident. You can even lease it immediately after the property is transferred to your name and the new title deed is issued. There will be nominal charges which you will pay like DEWA and maintenance. Regarding your ownership status, if you wish to buy the property with a business partner in joint name, then you can do so in cash. But if you plan to get a mortgage against your property, it should either be in your name or your and spouse’s names, but as business partners, you cannot get a mortgage in Dubai as it will not be considered. However, both partners can individually apply for a mortgage considering a similar income source. The lending bank would do their due diligence in validating the eligibility criteria as per the profit shares in the business.

I plan to buy a Dubai villa on mortgage. Should I get a pre-approval? What if I defer the plan or want an expensive unit? Do I need another pre-approval?

Pre-approval is the preliminary stage of a mortgage undertaking in the home buying process as agents and sellers want evidence of a buyer’s ability to secure a mortgage and bid on a property. You (buyer) can also distinguish what your buying power, potential payments and exact debt funding costs will be. You only sign the purchase agreement after you get a pre-approval, which is valid for 30 days, so you have a month’s time to decide. But if you think you need more time to finalise your purchase, you are also free to do so. You can renew your pre-approval anytime by updating your current financial status. If you wish to buy a property of higher price, the pre-approval document itself identifies your spending limit by analysing all your funding corpus. If you think you have a strong monetary background to support your purchase, just approach your lender anytime to evaluate your purchasing power.

I own  two properties: one bought in cash and rented, the other mortgaged and where we currently live. We would like to get equity release from the rental income. Can we get equity release from a rental property?

Yes, you can get equity release on your rental property. There are a few lenders in the market which would consider only your rental income to provide equity release.

However, the interest rate may be higher and this will be because there is a risk for the bank when lending on such a property that is not the customer’s main residence.

The eligibility of the loan amount would be defined by the rental value of the tenancy agreement and the current market value of the property as most financiers would lend up to 50% of the property’s market value, keeping in line with the eligibility qualification from the rental income. Also, the rental income would need to be assigned with the bank until the loan facility has been availed of.

Source: Dhiren Gupta, Managing Director, 4C Mortgage Consultancy

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