Did You Know About Mortgage Loan
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Understanding Mortgages
Mortgage Products And Services :
Primary market deals are the loans booked for the properties bought directly from the developer and mortgaged to the bank to finance the purchase.
If the construction of the property is completed and ready to occupy, the loan gets disbursed fully on receipt of the lien document from the lands department/developer.
If the property is off-plan then the funds are released as per an agreed payment plan which is generally linked to construction milestones.
Secondary market deals are the loans granted to facilitate the purchase a property from an existing individual/entity that owns the property.
If the current owner has an existing mortgage on the property the buyer’s bank settles the seller’s mortgage loan first and subsequently the title is transferred to the purchaser.
Any excess amount after settling the dues of the seller’s bank is paid to the seller at the time of title transfer.
This requirement is the same for Islamic financing and a conventional mortgage.
A construction mortgage is a type of mortgage used to finance the construction of a home, and typically only requires interest be paid during the construction period.Once the building phase is over, the loan amount becomes due and it becomes a standard mortgage.The money loaned is typically advanced incrementally during the building phase as construction progresses.
Often financing to build a new home comes in the form of a construction-to-permanent construction loan.This financing option has two parts: a loan to cover the costs of construction and a mortgage on the finished home.The advantage of such plans is that you have to apply only once, and you will have only one loan closing.
Construction mortgages may be sought as a way to better ensure that most—if not all—construction costs are covered on time, usually preventing delays in the completion of the home.It is possible that unforeseen expenses may arise, increasing the overall cost of construction.
Lenders may offer different options to make construction mortgages more attractive to borrowers.This could include interest-only payments during the construction phase, and for construction-to-permanent loans, they might also offer locked-in interest rates once construction begins.
At the start of 2014, the central bank of UAE introduced regulations for the mortgage market governing various criteria pertaining to mortgage lending covering the entire life cycle of a mortgage loan.
The key takeaway from the regulations was that the requisite down payment while purchasing a property was now regulated.
The complete regulations can be downloaded
Click Here
♦ UAE Nationals:
♦ 1st Mortgage (self-use):
Property value below AED. 5 Million – maximum 80% finance
Property value above AED. 5 Million – maximum 70% finance
♦ 2nd and subsequent mortgages (for investment):
Property value below AED 5 Million – maximum 65% finance
Property value above AED 5 Million – maximum 65% finance
♦ Expats And Non-Residents
♦ 1st Mortgage (self-use):
Property value below AED 5 Million – maximum 75% finance
Property value above AED 5 Million – maximum 65% finance
♦ 2nd and subsequent mortgages (for investment):
Property value below AED. 5 Million – maximum 60% finance
Property value above AED. 5 Million – maximum 60% finance
The central bank currently does not regulate the finance of commercial real estate/properties.
Banks and other lenders in the UAE offer finance of up to 70% of the property value for commercial properties both Resident Expats & UAE Nationals based on classifications and internal criteria
The basic types of properties in this segment are Offices, Retail shops, Warehouses, Labor Camps & Buildings.
Most banks accordingly segment their policies with different lending limits based on the type of property and finance required. Accordingly, we suggest you seek advice from mortagemarket.ae for a tailor-made product that suits your requirements for commercial lending.
Important Documents :
- The following documents are required to be submitted by the customer when applying for a home mortgage.
- Additional documents may be required by the bank and will be communicated to the customer as and when needed.
- a. Salary certificate addressed to the bank
- b. Copy of passport, visa, Emirates ID and Khulasat Al Qaid(where applicable)
- c. 6 months bank statements of all accounts in UAE.
- d. Last 6 month pay slips(where applicable)
- e. Latest credit card statement of all active cards.
- f. Details of existing loans if any.
- g. Signed Etihad bureau authorization (will be provided by the bank).
- h. Application form.
- The following documents are required to be submitted by the customer when applying for a home mortgage.
- Additional documents may be required by the bank and will be communicated to the customer as and when needed.
- a. Copy of passport, visa, Emirates ID and Khulasat Al Qaid(where applicable)
- b. Valid Trade License copy of the business
- c. Copy of the company’s MOAs including any amendment / share certificate
- d. 2yrs audited financials.
- e. 6 months bank statements of all company and personal accounts in UAE.
- f. Offer / facility letters if any loans and facilities availed company
- g. Latest credit card statement of all active cards.
- h. Details of existing loans if any.
- i. Signed Etihad bureau authorization (will be provided by the bank).
- j. Application form.
- k. Company profile
- Documents required for Resale Transactions :
- a. Cheque for Property Valuation Fee
- b. Dubai Lands Department MOU form A,B and F Copy signed by buyer and seller
- c. Title deed copy
- d. Floor Plan of the property
- e. Seller’s PP copy
- f. Liability letter if the property is currently mortgaged
- Documents required for First Sale Direct from developer :
- a. Cheque for Property Valuation Fee
- b. Sale and Purchase Agreement (SPA) copy
- c. Oqood ( Pre-title deed from the developer ) copy
- d. Property Floor Plan
- e. Building Completion Certificate (BCC) Copy
- f. Handover Note from developer
- g. Latest Statement of account for amount paid and due to the developer
- Buyouts and Refinance
- a. Cheque for Property Valuation Fee
- b. Property Floor Plan
- c. Liability letter if the property is currently mortgaged
Important Details :
Insurance
Banks in the UAE require that mortgage loans are covered by insurance. Most banks insist on the insurance being availed from the bank itself while other give clients an option to assign your existing insurance to the bank for the term of the loan as long as it meets certain criteria. The main types of insurances that are mandated are as follows:
A. Life Insurance
This is an insurance taken on the life of the borrower covering the loan amount for the tenor of the facility. This ensures that in the event of the demise of the borrower the liabilities toward the bank are settled by the insurer and the property title free of encumbrance is handed over to the inheritors of the client after due court processes.
B. Property Insurance
This is an insurance taken on the property to the maximum extent of the property value that generally covers reinstatement costs should the property suffer from damages due to external factors or failure of structural components.
Property Insurance
Banks in the UAE require that mortgage loans are covered by insurance. Most banks insist on the insurance being availed from the bank itself while other give clients an option to assign your existing insurance to the bank for the term of the loan as long as it meets certain criteria. The main types of insurances that are mandated are as follows:
A. Life Insurance
This is an insurance taken on the life of the borrower covering the loan amount for the tenor of the facility. This ensures that in the event of the demise of the borrower the liabilities toward the bank are settled by the insurer and the property title free of encumbrance is handed over to the inheritors of the client after due court processes.
B. Property Insurance
This is an insurance taken on the property to the maximum extent of the property value that generally covers reinstatement costs should the property suffer from damages due to external factors or failure of structural components.
The valuation will consider the property’s location and condition and recent sales of similar property to determine its worth.
Al Etihad Credit Bureau is a Public Joint Stock Company wholly owned by the UAE Federal Government. As per UAE Federal Law No. (6) of 2010 concerning Credit Information, the company is mandated to regularly collect credit information from financial and non-financial institutions in the UAE. Al Etihad Credit Bureau aggregates and analyzes this data to calculate Credit Scores and produce Credit Reports that are made available to individuals and companies in the UAE.
The Credit Report helps banks and financial institutions to make better-informed decisions, process mortgage applications faster as all financial information is available in the report including repayment behavior of credit card, personal loan, cheques and utility bills. The banks are required to obtain a consent from customer before pulling report from AECB. It is very crucial to maintain timely payment of your loan, credit card & Utility Bills to ensure good standing.
To know more about AECB Click Here
Most banks in the UAE offer mortgage rates that are either EIBOR linked or linked to an internal benchmark rate. In addition some banks offer discounted pricing for a specific period post which the pricing reverts to one of the below structures:
a) EIBOR + Fixed Margin
b) Internal Base Rate + Fixed margin
EIBOR – EMIRATES INTER-BANK OFFERED RATE for United Arab Dirhams.
In simple words, this is the rate at which a consortium of leading UAE based banks are willing to lend to each other for a specified tenor. Such rates are shared daily by the banks to central bank which publishes the same as an average rate.
Since April 2018, the Central Bank of the UAE has not been acting as the calculating agent of EIBOR and this role has been assigned to Thomson Reuters Ltd as per Notice 75/2018 on “REGULATIONS REGARDING EMIRATES INTERBANK OFFERED RATE (EIBOR) SUBMISSIONS”
Simply put, this is the component of the rate that remains unchanged during the entire tenor of the mortgage facility. The lower the fixed margins the better as on the long run this would mean lower average rates especially when the Eibor starts to drop.
The internal base rate of a bank is defined by the bank itself. While the rate is at the discretion of the bank it generally fluctuates with the Eibor and banks offering this structure generally offer longer introductory fixed pricing and lower Fixed Margins.
All mortgage loans in the UAE are based on a standard amortization model where interest/profit is charged on a monthly reducing balance. The payments are equated and generally charged on a monthly basis, however the central bank regulations allow a maximum repayment interval of 3 months (quarterly payments).
The monthly installment payment towards your home finance has two primary components which is repayment towards Capital & Repayment towards Interest/Profit. Every installment payment will reduce your capital outstanding and part of annual interest will be recovered proportionately in that month.
To generate a sample schedule please Click Here
While most banks are happy to link their mortgage rates to the Eibor especially in the increasing trend which has been prevailing in the last 3yrs, they also don’t want the mortgage rates to drop significantly when the Eibor enters the downward movement cycle. This is where the Floor rate comes into the picture. The floor rate means the minimum rate chargeable on the mortgage facility irrespective of the EIBOR or the Fixed Margin. Needless to say, it is very important to ask your mortgage adviser if the bank has a contractual floor rate and what that rate is.
