How to Get the Best Equity Home Loan Rates in Dubai, UAE Guide
Author: Faizan Amin
What is an Equity Loan?
Equity Home Loan, as the name implies, is a financing tool through which a bank loans you against your existing equity. To make it simple, if you own a property or a certain percentage of it, then a bank sanctions you a loan against that property, which will be put down as collateral.
Equity Home Loans can be very fruitful for borrowing money for different purposes like doing business, settling previous property loans, buying a new property or anything else.
As we all know, the amount of financial freedom and convenience is immense, owing to the amazing financial services and loan options available to residents and expats here. It eases down the burden of owning property through different property loans, which include mortgage loans and equity home loans.
There are a lot of banks which offer different sets of benefits for the applicants, so you can always find the best mix of terms to suit your situation.
Who Can Apply for an Equity Home Loan?
There isn’t a long list of requirements for one to become eligible for a home. The most basic thing you need to have is a property and a continuous earning so your eligibility can be calculated. One can apply for an equity-based loan to counter different situations, let’s discuss some common ones.
Home equity loans are ideal when you have purchased a property on a mortgage and have an urgent requirement of cash for your business, home improvements, or any other purpose. The lender can use the current property as a collateral to reduce the risk, and you can easily secure the much-needed finance to settle your matters.
Moreover, equity loans can also be used to reduce the burden of your existing mortgage loan. Financial situations can be expected to fluctuate, and one might get troubled about the outstanding instalments and loans. So to get some support in maintaining previous loans, one can make use of these equity loans which can also help in ensuring long-term financial stability if things are planned well.
There can be many other such situations where equity home loans can be handy. One thing has to be considered, if you think your current mortgage rate is higher than the market and plan about completely paying off your outstanding mortgage loan this way, your better option is to get a mortgage refinance. Because equity home loans generally carry higher interest rates in comparison to mortgage loans.
Another important consideration is that one should always maintain a strong credit history, which is an important factor along with the income and equity for securing a loan. If you expect any irregularity in repayment of your mortgage loan, it is ideal that you apply for an equity loan in time so you can look after your credit score which is important for a lot of your banking requirements like
Benefits of Equity Home Loan
Equity Home Loans are a popular financing type, as it brings a great amount of benefit for the debtor and a lot of security for the debtor. The debtors get the benefit of finding flexible repayment schedules, higher loan amounts and a lot more to manage their finances conveniently. Here are some of the major advantages of Equity Home Loans.
Usage of Equity
No matter how bad your current financial flow is, your equity can bail you out of the situation. A major benefit for applicants is that the major judgment element is the equity, which brings a sense of security for the lending institution so it can ignore your financial condition to a great degree. So even if you have troubled finances, you have a very convenient way of streamlining things with equity loans.
Even if you have purchased a property through mortgage finance, you can make your efforts count to get yourself another loan. In simpler terms, the property value which you have already repaid in the form of instalments will be held as collateral for the loan.
This way, although you were unable to pay off the previous loan, the amount returned will serve as an advantage for you. Financial institutions and credit unions also offer a very flexible and beneficial home equity line of credit once you have secured sizeable equity in any property.
With Poor Credit
It is always advisable to maintain a good credit history so you can get quick approvals and more choices. But a major positive aspect of equity home loans is that even bad credit can be ignored by the lenders, as they can depend on the property value to secure their Property investment.
So even when you are unable to maintain good credit, have a credit card debt, mortgage debt and other liabilities, you can still be hopeful of securing hefty loans and credit lines.
Are Mortgage Loans and Equity Home Loans the Same Thing?
Mortgage Loans and Home Equity Loans might sound similar, as both are financing tools and involve property. But they are very different, mortgage financing helps you get a home or property, while an equity loan can be acquired once have got property. To understand the different further, we will briefly discuss mortgage loan just as we did with equity loan.
A mortgage loan the one where a bank or any other lender provides the loan to finance a property for the receiver. The property to be purchased is kept as collateral and you can keep increasing the equity in your home by strictly paying the instalments during your repayment period.
Mortgage Types and Calculation
Mortgage loans come in several forms, mostly differing on rates of interest only. Let’s get straight into the details about each type and discuss what each variant has to offer.
Fixed Rates Mortgage Loan
These mortgages follow a fixed interest rate throughout the loan tenure, which means that you are aware of all your monthly payments from day one. The advantage of the fixed interest rate is that you can easily plan for your payments and are most likely to avoid a situation where you need cash out refinance.
As the term suggests, the interest rates here are determined by the EIBOR Rates, which fluctuate regularly. The drawback is that you cannot plan ahead of your payments and can be caught unaware. On the up-side, you can get the benefit of a low EIBOR Rate from time to time and save your bucks.
Other Mortgage Types
Along with these major types, one can also find other types of mortgage loans in the UAE. There is the Capped Mortgage, which is also variable rate mortgage but with an upper limit for the Mortgage rates. The Discounted Rate Mortgage, which follows a very low interest rate for a certain period of the loan tenure.
Offset Mortgage, another type used in UAE, allows debtors the freedom to deposit or take out the amount at will, directly controlling the outstanding loan amount.
Mortgage calculation is an expert job and can be difficult for common people. The best thing to estimate repayment schedules and monthly payments is by contacting an expert. Before that, you can also do a calculation by yourself using DAMAC’s Mortgage Calculator. This calculator helps you get an estimation of the monthly instalment to be paid, based on the interest rate, loan amount, and loan term.
The difference with Equity Home Loans
Mortgage loans and equity home loans both provide loans against a property, but there is a basic difference in both. In equity home loans, the term “equity” holds a defining significance.
At the time of mortgage loan application, the applicant does not hold any equity in the property to be held as the collateral, while with equity loans, the section of the property which is owned and paid for by the applicant is the centre of attention. The importance of equity and its usage as the main source of security for the lender is the major difference between both loans.
Applying for Equity Home Loan
It is fairly easy to apply for an equity home loan. It only requires a few simple steps to start the process, while everything else is literally to be done by the bank. Here is what you have to do:
- Select a bank and provide all the documents as required. Usually, identification, earning and ownership proofs are required.
- You can be asked for further documents and legal registrations once your application is approved.
- That is all, you now have to wait for the funds which you can use for a multitude of purposes.
It is important to look at the methods of paying back this loan, as usually people only apply when their financial situation is averse. You surely don’t want to lose your home, so this loan is a viable option to bail you out. But as you now have a combined loan to pay off, better financial planning has to be done and the amount of the new loan has to be used smartly.
Equity home loans can help in a lot of ways. There is often a situation when the user of a mortgage loan has trouble with repayment of debt and looking for ways of debt consolidation. There are many options including cash out refinance, but the most suitable choice is the equity home loan.
With equity home loans, you can make good use of the equity you have accumulated over the years by paying instalments. You can acquire a new loan, with flexible terms and eligibility criteria to deal with your troubled financial condition.
All in all, the equity home loans provide a great option which you can use any time, but like any other financial solution, they have to be used with proper planning to ensure long-term benefit for the applicants.
Frequently Asked Questions
What is an equity loan on a house?
An equity loan is finance provided against a fully or partially owned property. The property that is owned by the applicant is held as the collateral for this loan.
Are equity loans a good idea?
Equity loans can be very useful in different situations. They can help you make use of your equity to get funds for a business opportunity, home renovation, or support in paying off mortgage loans. Using equity loans is a good idea in most situations.
How much equity can you borrow against your house?
You can get a loan of up to 80% of the property value. There is a condition that you must be owning more than 20% equity in your existing property.
What is a home equity loan vs mortgage loan?
A mortgage loan is the one in which you can get a loan to buy a property, with that property being held as collateral for the security of the lender. A home equity loan, on the other hand, requires the applicant to own a property, or have equity in a property to get the loan, with the equity being used as collateral.
In easier words, a mortgage loan helps you get a property, while equity loan requires you to have a property to apply for finance.
Can you pay off the mortgage with home equity loan?
There is no restriction regarding the usage of home equity loans and they can be attained when you already have acquired a mortgage loan. So you can use the home equity loan to pay off your outstanding mortgage amount. Although, it is advisable to use the funds from the loan on a revenue-generating asset which can help you in paying back your loans, as both finances come with interest and closing costs.
Are there closing costs on a home equity loan?
The closing costs can make up about 5-7% of the total loan amount. These costs generally include land department charges, registration & documentation costs, origination fees, mortgage registration fee, processing charges, valuation charges and some other processing costs. The lenders can waive off a major percentage of closing costs, but governmental charges and registration fees cannot be waived.