Equated Monthly Instalment (EMI)
Refers to the monthly payments that you make towards repayment of the loan amount, over the term of the loan.
Transferring your mortgage from one lender to another.
Early Repayment Charges (ERC)
As the name suggests, ERC refer to fees that lenders may charge you if you decide to pay off the mortgage earlier than the initial term of the loan.
When you start paying off your mortgage, you start to build equity in the property. For example, if you’ve bought a property worth AED 1.5mn and have already paid off AED 500,000 that means you have built up AED 500,000 worth of equity in your property. This allows you to take either a top-up loan/ equity release, which is additional borrowing on your existing loan that can be used a variety of purposes.
Equity Release/Top-up / Additional Borrowing/Further Advance
After a mortgage has been fully paid (disbursed), you can apply for additional borrowing at any time, subject to eligibility. You can use the built-up equity in your home to take out a loan to consolidate loans, or pay off unexpected expenses.
Loan-to-value refers to the percentage of the property value that the lender is willing to lend you. This is governed by the UAE Central Banks regulations.
This is the length of time before you pay off your mortgage.
Mortgage Rates Types
Fixed Rate mortgages
The interest rate stays the same for a specified period of the loan. Here are some things to consider:
Your mortgage payments will stay constant throughout the term of the fixed interest rate.
Unaffected by changes in general interest rates
You are protected from sharp increases in interest rates, but also can’t take advantage of lower rates, unless you refinance.
Variable Rate mortgages
The interest rates can be changed at regular intervals (typically annually) by the lender or on the Account Review Date. The monthly payments would usually change from year to year. Here are some things to consider:
Monthly payments may change from year to year. Therefore, to avoid any unexpected surprises, you should invest time in understanding whether rates are going up or going down.
Possibility of lower payments
However, since rates are variable, you may be offered a lower starting interest rate.
Variable rates are generally linked to a standard rate, which may be a Central Bank rate, or an internal base rate set by the financial institution. If you want to be an informed borrower, it’s wise to know what your variable interest rate is based on.
There are many different types of mortgage loans available, each offering different features and benefits. There are also various ways in which mortgage loans can be repaid. The type of mortgage loan that will suit you best depends entirely on your circumstances both now and in the future.
Repayment Mortgage Loans
With a Repayment loan, your monthly instalments are made up of two elements:
- The interest you pay on the loan.
- The repayment of the capital sum.
The exact proportion of capital repaid in relation to interest paid is dependent on the term of the loan. A shorter term generally means that you will start to pay more capital than interest at an earlier stage. A Repayment loan is the only option that will guarantee to repay your loan over a defined term, provided that you keep up with your payments.
Interest-Only Mortgage Loans
With an Interest-Only loan, your monthly payments cover the interest and no capital is repaid. As you are repaying only the interest, your monthly payments are lower than a similar value Repayment loan. However, you will need to find a way to repay the capital at the end of your Interest-Only period. An Interest-Only payment method can be selected for both under construction property phases as well as completed property phases. Please note, however, that under UAE Central Bank Regulations, Interest-Only loans can only be made available when buying the property for investment purpose with a loan period no longer than 5 years from the first drawdown date
Combination of Repayment and Interest-Only Mortgage Loans (“Part and Part” Mortgages)
With a Part and Part loan, a proportion of the loan is treated as Interest-Only and a proportion of the loan is treated as Repayment. Therefore you will still need to find a way to repay a proportion of the outstanding capital at the end of your mortgage loan term. Your monthly repayments are lower than a similar value Repayment loan. Over the longer term, you would pay more interest on a Part and Part loan than on a similar value Repayment loan, as more of the capital remains unpaid throughout the term.
Most mortgage lenders require you to have insurance. It can come in various types, and we hope the following clears up any questions.
Loan Protection Insurance/Life Insurance
For most lenders, it is mandatory to have Loan Protection Insurance (LPI) during the term of the loan, to cover the total amount borrowed. The insurance may cover a number of causes including sickness, disability or death. The insurance is typically charged monthly, and is usually added to the monthly instalment of the mortgage. Cost of the insurance depends on a number of factors, which can include age, health, lifestyle, smoking habits, or length of coverage. Most lenders will offer this insurance as part of their group policy. Alternatively, if you want to use your own insurance policy, many lenders will allow you to assign it.
This insurance policy protects the owner in the event of certain types of damage to the property. Property insurance typically covers fire, wind, hail, theft and more. Property insurance is charged yearly and most lenders will offer this policy.
This provides coverage that pays for damage to, or loss of, an individual’s personal possessions whilst they are located within that individual’s home. Contents insurance is generally not mandatory, but is offered by most lenders.