Mortgage Refinancing UAE 2024 : All You Need to Know

Mortgage Refinancing

Planning to buy a property in the UAE? Read this quick guide about cutting monthly mortgages!

The pandemic has wreaked havoc on the world in different ways. There's no doubt in asserting that the real estate industry has also shared its consequences. The rising prices of properties had made it further difficult for buyers to make an efficient purchase.

However, there's one advantage that people can undoubtedly leverage amidst the skyrocketing prices, i.e., low mortgage rates. Indeed, mortgage rates are falling low in the past few months, and it is expected even to plunge deeper.

What is the situation in the UAE market?

UAE has a flourishing market where home buyers have been harnessing the potentials of lower mortgage rates and going for refinancing. Banks and financial institutions are offering lower mortgage rates to aspiring property buyers in the deflated market.

As they have been continuously setting lower mortgage rates, refinancing seems to be the perfect option for UAE property buyers.

Besides offering lower interest rates on variable-rate mortgages, financial institutions are also providing fixed-rate mortgages at lower rates.

Some banks are adding incentives like the inclusion of Dubai Land Development fees and broker fees within the loan amount, along with significant discounts on valuation fees and processing fees.

Surprisingly, the majority of banks have started waiving off the pre-approval of valuation and processing fees when you opt for refinancing your mortgage with them.

One of the UAE buyers stated that he went for refinancing when his rental income fell 20%. He came to find a new tenant for the house long after the house was vacant for four months in the last year, which also affected his income. Only financing appeared to be the ideal alternative to save his income.

Dubai Mortgages

Why has mortgage refinancing in UAE become a necessity?

Opting to refinance your mortgage totally depends on your goals and existing financial situation. A home loan is offered at a longer tenure, ranging from 15-25 years.

Therefore, for the next one to two decades, you will be paying mortgage installments on a monthly basis. Because life is uncertain, it is highly likely that you can experience unforeseeable financial circumstances.

So, you may find it difficult to pay the mortgage loan on time. This is where the significance of refinancing your mortgage loan is realized.

It is essential to understand that mortgage rates have gone severely down in the past few months as compared to previous years. To be precise, the mortgage rate is 3% or lower.

The significant advantage of refinancing to the owner is that it helps in rescaling the monthly payment but at a lower level. As the mortgage rates have come down and it is anticipated to go even lower, refinancing makes all sense at this time.

Here are a few common reasons why refinancing has become a go-to option for home buyers:

  • To get a lower interest rate
  • A new loan can decrease or increase your existing loan period
  • Convert adjustable-rate mortgage to fixed-rate mortgage and even vice versa
  • Raise fund by tapping into home equity

What is Mortgage Refinancing?

Refinancing is when you get a new mortgage loan to replace your current loan. When you refinance, you apply for a new home loan similar to what you did to buy the house. However, this time, rather than using the loan amount to buy a house, you will be using it to pay off your current mortgage. The result is that you will continue paying off your home “ but this time, you will be making monthly payments on the new loan rather than the old one.

Raising the LTV has benefitted in a great way

Government bodies and even private dealers have been taking initiatives to encourage buyers.

In March 2020, the Central Bank launched a series of initiatives that were directed to enlighten businesses and residents about the financial effects of the pandemic.

One of the initiatives was focused on raising the Loan-To-Value for first-time homebuyers in the UAE.

Banks started to provide home loans of up to 80% (previously 75%) for first-time property buyers for buying properties valued at or below Dh5 million. In the case of UAE nationals, the home loans were offered from 80-85%.

After which, any buyer who possesses a mortgage from a bank according to the LTV limits will be able to re-negotiate in order to raise the loan or look for another lender. With this, buyers are able to reduce their commitment to the down payment and optimally utilize the low-interest rate.

Industry experts are claiming that the low-interest rates work as a pulling force for newbie buyers to go for a mortgage as it enables them to use their money profitably. Instead of being stuck with one property, they can diversify their funds and get maximum profits out of it.

After what people have gone through financially last year, it makes complete sense to adopt ways that can reduce the burden. Mortgages are one of the biggest financial commitments anyone can have in their account every month, and they would want to get rid of it or lessen it.

Are post hand over plans trending?

According to reports from the banking industry, first-time buyers are interested in mortgages. A majority of buyers have shifted their purchase intentions to this year, looking forward to getting better economic benefits. Of course, the financial situation back then was one of the major reasons why people were thinking of switching.

Developers in Dubai are also offering post-handover payment plans and keeping a low-down payment. By doing so, developers expect that buyers would not seek financial help from banks or, worse, use their personal income to buy a property.

A majority of the post-handover plans are meant for around two-to-five years. The best example of this is Business Bay and the Downtown area in Dubai, where new towers are getting delivered, with real estate companies offering extended post-handover terms to the buyers.

There are lucrative offers going around for a recently completed tower at Business Bay. For instance, property developers are offering 7-year-post-handover plans to buyers with prices starting from Dh710,000.

Post-handover plan Or mortgage? Which is better?

As mentioned above, developers are trying to provide the best buying scenario for the buyers. So, is it still necessary for the buyers to go for financial help from banks?

Mortgages will indeed remain a popular choice, and it is here to stay. At the same time, a post-handover plan has emerged as a feasible option. It has become essential to analyze both the opportunities and find what's ideal and for the buyers' best benefit.

Let's take an example of a property worth Dh2 million with a five-year payment plan. Even after the segregation, the monthly cost to a buyer will fall around Dh33,000, which is paid in quarterly or bi-annual installments.

On the other hand, a majority of buyers would be able to access mortgages that are available for a maximum of 2 years. In this, the monthly installment would be as low as Dh7,000. So evidently, it is a more accessible and profitable approach compared to the payment plan.

Additionally, mortgages will have a security layer of the government and stringent verifications from the banks. So, there are more than one reasons to choose mortgages over payment plans.

Dubai Mortgage for Non Residents in UAE

The Bottom Line

As a property buyer, it is your decision to choose an approach that seems lucrative to you. Both payment plans and mortgages have their sets of pros and cons that you must weigh. However, mortgages are likely on the beneficial side. Hence, now is the time to think about it and grab the advantages.

Make sure to keep this guide handy whenever you want to think about buying properties in the UAE.