Picking the right method to pay off a mortgage

MortgageImage Credit: Supplied

Many people live on rent in the UAE. Nevertheless, everyone desires to own a home. But the major hitch in doing so is paying off the home loan, which takes years, and is one of the biggest stressors for the homeowner.

However, this stressor has a buster. Owners can opt for accelerated mortgage payments. It means one can make additional payments over and above the normal equated monthly installments (EMIs) to close the mortgage earlier and even reduce interest payments.

“Over time, as the value of the property goes up and the outstanding mortgage goes down, it builds equity for your property, which can be rewarding,” says Sam Wani, GM of Independent Finance.

To pay off a mortgage faster, financing institutions offer clients many schemes like bi-weekly and bi-monthly payments. Nevertheless, “most lenders in the UAE would take a lump-sum payment annually. Alternatively, one can keep accumulating deposits in a dedicated account, which will make periodic or annual lump-sum payments,” explains Wani.

The UAE provides a non-taxable, high-income economy. “Therefore, most high income homeowners prefer to pay off their mortgages early through the lump-sum repayment schemes,” says Wani.

In contrast, residents who live from paycheck to paycheck are advised by Wani to go for fixed rate mortgages. “Lenders provide exclusive rates on three-year payment and offer revert rates depending on your eligibility. Also, a stress test is conducted by them to check your repayment capability before advising on a product,” Wani says.

The western countries have come up with new schemes for accelerated mortgage payments. One of them is called Home Equity Line of Credit, allowing people to pay off their mortgages in five to seven years. But, Wani says, “line-of-credit and offset mortgage are products that are not launched by UAE lenders yet. However, work is going on to launch both these categories. Lenders need to start having their systems and structures in place to manage these mortgages if the customer choice increases on these products.”

Handy Hints
• Making mortgage payments is easier with accelerated payment schemes
• Options are bi-weekly, bi-monthly, annual lump-sum amount, among others
• Lenders are hinting to launch new products to pay off mortgages much faster

Source: Arva Shikari, Special to Properties
The writer is a freelancer


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