Home Equity Release Loans in Dubai (UAE) - Best Rates Guide
Author: Sadiq Suleman
From a residential point of view, purchasing a residential property is one of the most important and exciting things you can do in your lifetime. For the purpose of Buying the ideal property in Dubai, you search through the internet, speak to friends, family and even meet with various property developers to see if you can purchase the property.
Along with that, you also have to explore and investigate the various types of mortgages and home loans available to you. It is certainly a better option for old-age individuals that usually avail retirement interest only mortgage options for home financing.
It is essential to note that mortgages and equity home loans is not strictly the same thing, most of the individuals that may well opt for the former have the option to take out a guarantee on their intended property purchase as a security option for the loan.
This also means that they can take out a mortgage. This is the main reason why they are also described as mortgage loans. One of the biggest benefits of equity release financing is that you can release equity from your home.
This means that if the total value of your home is higher than what you owe on your mortgage, you could well be able to 'top up' your mortgage by the means of equity release option. This is is an additional mortgage loan secured that could be secured on the property.
In this blog, we will guide you about the option of equity release mortgage in UAE. Comparison of equity release with other mortgage payment types in UAE
Equity release home finance in the UAE (Dubai)
Within the UAE, Equity release, also known as loan against property, is provided by various financial institutions. However, it is marketed to a wide range of homeowners that have been looking for a convenient method to access cash for the payment of home improvements, purchase a second home or also pay for other bigger expenses.
For UAE citizens and expatriates, Equity release could prove to be a viable option. This is because a significant percentage of investors that do acquire properties in cash have the option to benefit from the extra liquidity option when market crashes down.
Some of them are readily available to all of the homeowners in UAE that have a title deed for their individual property. On the contrary, others are available only for UAE citizens. It is certainly a far more beneficial option for investors that have been planning to acquire a second home as it also helps them to become rent free.
Through Equity release, you can also move into long term to a better residential property. Within the context of current mortgage rules, expats in the UAE can only borrow 60% of a subsequent property’s value. On the contrary, UAE nationals have the option to borrow 65%.
Comparison of equity release with other mortgage payment types in UAE
Capital and interest repayments
This is one of the most common and popular repayments types in UAE. The borrower consistently pays monthly repayments. They help to cover in paying the capital and monthly interest. The initial loan years could well have a fairly high interest rate. However, subsequent years could result in the interest to go down. As a result, the money going towards actual loan could well increase.
Fixed-Rate Mortgage Payments
One of the most common mortgage options available for UAE residents, fixed-rate mortgage payment users have one interest rate that lasts throughout the loan period. It is pre-determined before any agreement has been signed. The fixed rate is primarily for 5 years.
However, it all depends on your broker. As a result, you may well have a fixed rate for entire loan period. It could provide you long term care as you only have to fixed monthly repayments.
Variable interest mortgage payments
The variable interest mortgage payment is primarily determined by the market. As a result, it is highly susceptible to fluctuations in the loan period. As a result, it also makes it highly cumbersome for making an accurate budget for the future. It is indeed a beneficial choice if you do feel that the rate of interest could well go down or if you are also financially sound for handling a potential increase in interest rates.
Mortgage financing options in UAE (Dubai)
Among some of the financial institutions that provide mortgage solutions in UAE, the Abu Dhabi Islamic Bank (ADIB) is probably the best bank that offers some of the best mortgages rates for buyers looking for an equity release in UAE.
ADIB positions its product in a manner that can allow potential owners to increase their Dubai Real estate investment portfolio and the equity for starting a business or build a dream home. Moreover, ADIB also has an alliance with DAMAC group to bring the best possible mortgage rates for nationals and expatriates looking to purchase a property in UAE.
Together with DAMAC, ADIB provides a fairly low interest rate of only 1.99% for 7 years. This is applicable to all the properties that are brought by potential residents in UAE from DAMAC. The service is also free from any evaluation and processing fee.
This does make sure that you have to pay a fairly low cost for acquisition of a loan. UAE nationals have the option to avail financing for nearly 85% of the total property value. On the other hand, expatriates can get loans of nearly 80% of the total property price. The maximum tenure of the loan is 25 years.
Some of the other most prominent financial institutions providing equity release financing option in the UAE include:
- Emirates NBD: One of the premier government banks in the UAE, Emirates NBD provides mortgage of maximum AED 15 million to residents. The mortgages are provided up to nearly 75% loan-to-value. Apart from that, a pre-approval facility is also provided to applicants.
- Mashreq: Being a highly recognized private bank in the UAE, Mashreq provides loans to expats as well as potential residents in UAE. Moreover, home loans are readily available for employed and self-employed expat residents that are able to earn at least AED 15,000 per month. The bank provides a maximum loan of AED million.
- HSBC: One of the prominent banks providing financial services in the UAE, HSBC provides mortgage options to prospective buyers with income of at least AED 15,000 a month. Mortgages are only provided on specific terms and conditions.
Calculation of mortgage
For potential property buyers, mortgage calculation could well be a very difficult task. However, if you want to have an idea regarding the monthly repayments, you will need to pay service cost of the loan before applying. To avail this option, you may contact any of the experts at DAMAC Mortgage Assist.
Moreover, you can even use DAMAC’s Mortgage calculator. By selecting this option, you can find monthly payments option. Moreover, you also have an option to make for any specific property that you may like.
Process of application
The process of application is very easy for applicants. Most of the work will primarily be done by institutions that provide financial services and financial advice in the UAE. You just have to follow these steps:
- Search for lawyers or mortgage brokers in the UAE to assist you in arranging the necessary documents.
- The documents would then be submitted to a specific financial institution or bank of your personal choice.
- You will get update regarding maximum property price.
- You than have to find the specific properties in that range and select the most appropriate one for you.
- After that, you also have an option to make a down payment and get a schedule for repayment for loan servicing.
- Apart from that, if you select to buy a property through the means of DAMAC Mortgage Assist, your property purchasing process would become much swift. It will involve the following steps:
- Contact DAMAC and provide your personal income details.
- Select from a comprehensive list of properties that are available for you. You can than start the process as per your convenience.
- When your loan has been approved, you should make the down payment and can also receive the repayment schedule as per your convenience.
What are the pitfalls of equity release?
Though equity release is a beneficial option for residents seeking to purchase property, there are a few pitfalls associated with it. One of the biggest pitfalls is that interest could build up quickly on the loan. Borrowing against your home could well result in reducing how much you could leave as an inheritance.
Is equity release a safe option?
From a financial perspective, equity release products could prove to be fairly safe. This is because they are regulated through the Financial Conduct Authority (FCA). Moreover, they are also governed by the Equity Release Council (ERC). You can also become a member of the equity release planning team.
Through the help of lifetime mortgages, you can always own your personal home and can have a significant increase in its value. Buyers can also opt for a no negative equity guarantee. This means that a borrower will never owe more than the value of their property.
How much interest do you pay on equity release?
Within the UAE, the typical lifetime mortgage interest rates for equity release are nearly 5%. However, some rates are under 3%. You also have the option of early repayment charges.
How long does equity release take to complete?
Depending primarily on the equity release plan that you have selected, it primarily takes between 7 to 8 weeks for releasing equity in your home.
Is there a better alternative to equity release?
There are several other alternatives available to equity release, even though they may not be highly lucrative. Some of the options include selling assets, remortgaging, downsizing to a smaller property, using your savings etc.
Can I sell my house if I have taken equity release?
A homeowner has the option to sell a home that does have an existing home equity loan. This could well be the easiest selling price on the home. Moreover, it could also be high enough to pay off the equity loan. Due to the fact that the house can no longer count as collateral, the home equity loan is required to be paid off for the home to be sold.
What is the best equity release plan?
For individuals living in the UAE, the best form of equity release plan is lifetime mortgage. It is by far the best and most popular type of equity release plan. The plan is provided by some of the biggest brand names in UAE that are best known for their insurance products or pension plans.
The other option is a home reversion scheme. Through this scheme you can sell all or a specific part of the property at less than its total market value in return for a tax-free lump sum, a regular income or even both. However, you can stay on in your home as a tenant, remaining rent free.
How does equity release actually work in practise?
Technically, equity release product plan is the way to unlock the true value of your property. You can do this through various policies. You can even release your equity tied up in your home. Moreover, if you are aged 55 or more, you don't need to fully pay off your mortgage to do this.
Can I release equity in my house to buy another?
Indeed it is. Remortgaging a property for the purpose of releasing equity used to help purchasing another property could be a common method that lenders use for increasing their portfolio.