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Owning a house is often the biggest dream and in realising it, we seldom think about the huge sum involved. But dependence on savings only may not help make it a reality. As a result, people opt for housing loans that can be repaid over time.
A home loan is sometimes one’s biggest liability considering the large amount and tenure involved. However, there are certain advantages as well. Probably the biggest achievement is capital appreciation. Owners can utilise low interest rate cycles to prepay loans and save more. A homeowner also enjoys tax rebates in many countries where income is taxable. Moreover, a rented home acts as a liability whereas a purchased one is a financial investment that proves beneficial in the long run.
In the UAE, nationals as well as expatriates can opt for housing loans from leading banks and lending institutions. The loan term generally extends over a period of 25 years and lenders can borrow up to Dh15 million at affordable rates. Although interest rates vary depending on market conditions, it generally hovers between 4 and 5 percent. Salaried as well as self-employed people are eligible and, in most cases, housing loans are offered in relation to one’s income. Individuals with a monthly salary of Dh10,000 can avail themselves of housing loans, but the salary requirement varies across banks.
On the basis of loan-to-value ratio, the UAE has set a mortgage cap. Expatriates must limit borrowings to 75 percent of the property value for their first purchase of less than Dh5 million. Emiratis can obtain up to 80 percent financing for similar purchases. For properties valued above Dh5 million, housing loans for first-time expatriate buyers will be limited to 65 percent of the cost and 70 percent for UAE citizens. And in case of second or subsequent investments, Emiratis are allowed to get a loan of 65 percent of the property value; other nationalities may borrow 60 percent of the final price.
The bank also uses various criteria to judge a borrower’s ability to pay including a borrower’s other financial commitments, current savings and assets, type of loan, value of the property, number of dependents and living expenses.
Therefore, before you opt for a housing loan, take into consideration the various factors that determine your eligibility.
• Banks in the UAE use various criteria to judge a borrower’s ability to pay back
• Both salaried and self-employed people can get loans payable up to 25 years
• UAE Central Bank released regulations capping loans of expats, UAE nationals
Source: Shabnam Mondal, Special to Properties
The writer is a freelancer