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Have you ever felt the need to change your mortgage lender, knowing there may be better, more affordable mortgage options with better terms? This inclination is only natural when you believe now is as good a time as any to refinance your current mortgage. There are numerous benefits to be had through a mortgage refinance, the most notable one being more leeway to meet monthly payments. You can enjoy the lowest interest rates along with more flexible terms as long as you understand what benefits and stipulations your mortgage product offers.
The recent US interest rate hikes have made many UAE residents consider mortgage refinancing; however, there are other valid reasons to consider refinancing your existing mortgage:
• The UAE Central Bank put a cap in December on how much banks can charge as exit fees. Banks are only permitted to charge 1 per cent of the outstanding principal balance, up to a maximum Dh10,000, whichever is less. This is a major development as it is applied retrospectively, even for mortgage customers who signed final mortgage offers stating 3-5 per cent buy-out charges.
• Several UAE banks offer zero processing fees when you move your mortgage from another bank, so you secure better rates as well as terms and conditions.
• If you took a mortgage before December 2013, you may be in a position to refinance up to 85 per cent of the current value of the property.
• Historic contracts lacked transparency, therefore, by refinancing you are placed into a new contract that is more balanced and not entirely in favour of the lending firm.
• Interest rates have declined by 50 per cent since 2008. You can cut down your mortgage costs by half through refinancing to get better terms.
Now is a good time
Homeowners can take advantage of the fierce competition among UAE banks to get discounted fixed-rate periods on their mortgage. Retail lending activity is starting to stiffen and it appears UAE banks are willing to be more generous when it comes to terms on existing loan exposures.
Things to consider
Many are not armed with the right knowledge before choosing a bank and product. There are over 100 mortgage products in the market, therefore, you should be well equipped. Do your homework before refinancing your mortgage:
• When choosing any loan product, you need to carefully read the fine print. Specifically, the terms and conditions on interest rates, which have a tendency to change. Watch out for hidden fees and penalties.
• Look at the fees and understand the set-up costs, rate and exit fees, before agreeing to any terms.
• Understand the rate as it is only temporary and will increase as the years accumulate. Typically, the rates advertised are one-year fixed rates.
• Best practice is to go with banks that link all their future rates to the Emirates Inter Bank Offered Rate as this is a more transparent way of doing business.
• Get everything in writing. If you're not getting it in writing, don't agree to anything. If terms are promised over the phone or face-to-face, always ask for them in writing.
If your only goal in a refinance is to reduce your current interest rate, consider negotiating with your current bank for a rate reduction before exploring new mortgage products. Some banks offer rate restructuring, which is a rate reduction to keep you from leaving the bank via a refinance. You can also negotiate with your bank to waive the refinancing fees.
According to Sawan Karan, Director of Home Matters Mortgage Consultants, ''Another option would be to consider a buy-out from one bank to another. Most banks would prefer to take over an existing loan with a history and track record of payments and deem this as less risk compared to a new loan. You can also negotiate with the bank on waiving the buy-out fees.''
A mortgage consultant is the one person you can rely on to give unbiased, impartial advice on which loan is best based on your unique circumstances. In addition, there is a better chance of renegotiating a better rate due to the consultant's existing relationships with the banks.
What you're looking at is significant savings in terms of fees. Prominent mortgage consultants have access to many exclusive offers from banks. So you're saving not only on the rate, but also on the loan as a whole. The first thing you should look at when choosing a mortgage consultant is the Certified Mortgage Broker (CMB) licence. Find a consultant with a CMB licence.
In addition, your advisor needs to be 100 per cent experienced and knowledgeable on both mortgage and real estate markets as well as all-related processes.
If you own a property in the UAE with little or no mortgage, you can refinance property and take the equity out. Equity release, often referred to as loan against property, is provided by many UAE banks and beneficial when seeking a fast and easy way to get cash to either buy more property, make home improvements or make your capital work harder.
For example, if you are paying a higher interest rate on your mortgage, you could potentially do an equity release at a lower rate and pay the same monthly payment. These funds can then be used for further investments, which generate a higher rate of return. You can also take advantage of lower real estate prices and buy an investment property. Also, with the US dollar's strength compared with the British pound or euro, it's a great time to take money out and send it abroad at a much better exchange rate.
Source: Lynnette Abad, Special to Property Weekly