Home Equity Release Loans in Dubai – Best Rates Guide

Tue, 22 Dec, 2020

The process of purchasing residential property can be one of immense importance and excitement. If you are looking for residential property within Dubai, you will likely surf the web, seek opinions from family and friends, and maybe even consult property developers and explore your options. 

While you are doing this, you will also need to investigate and assess the various home loan and mortgage types. These options are particularly beneficial for retired individuals looking to finance their home through interest-only mortgages. 

It is important to understand that, while home-loans and mortgages are terms that are used interchangeably, they do not exactly have an identical meaning. People who go for a mortgage can generally use their potential residential property as security against the loan money. This is perhaps the biggest advantage associated with the equity-release financing options – they allow you to extract equity through your residential property. 

What this will mean is that, in case your home value is higher than your mortgage debt, you can go for mortgage ‘topping up’ by triggering your equity release. In other words, you will be able to get a second mortgage loan secured against the property. 

This blog will talk all about equity release options present in Dubai and even across the entire UAE, and also compare the various options against each other. 

Home Financing Through Equity Release within the UAE:

There are several financial institutions that offer the option for equity release in the UAE. This option is typically intended for homeowners who require an easy and convenient way to obtain cash for home improvements and other expenses, or even to buy another house. 

Both expats and UAE nationals find equity release a very viable option. The main reason for that is the fact that investors who make cash payments for their properties can use the additional liquidity option during times of recession or market crashes. 

Many of such options are easily available to UAE homeowners, as long as they possess title deeds proving that a particular property belongs to them. However, there are a few other options that are only available to UAE nationals. These options are considerably more advantageous for an investor who has been thinking of investing in another home, since it will also enable them to get rid of any rental obligations. 

Thanks to equity release, it is also possible to upgrade your residence and move to a better house. The ongoing mortgage rules state that expats are only allowed to borrow a maximum of 60% of their property value, while for UAE nationals, this number is 65%. 

Equity Release v/s Other Mortgage Types:

Interest and Capital Repayments:

This mortgage type is highly popular throughout the UAE. A borrower who opts for this mortgage option will make consistent monthly repayments, which will comprise of both the monthly interest payments as well as a certain share of the initial capital amount that was borrowed. This means that the initial few repayment years can have fairly high rates of the interest. However, once a good portion of the capital has been paid off, the overall interest payment will come down. This means that a greater portion of the monthly payments will be going towards the repayment of capital. 

Fixed-Rate Payments:

This is yet another popular mortgage choice, available solely for UAE nationals. With this type of loan, the borrower agrees to pay the interest at a single, predetermined rate, for the entire mortgage term. This rate is usually decided for a period of five years. Having said that, the terms can vary a bit, depending upon to your particular broker. 

The biggest benefit of this option is that it provides long-term certainty since the borrower will know the rate that they will have to pay interest at for the entire loan term. 

Variable-Interest Payments:

At the opposite end of the fixed-rate payment type lays the variable-interest payments, the rate for which is usually market-determined. Consequently, the rate will not only vary, but can see major fluctuations across the loan term. Unfortunately, then, the variable-interest payment option makes it hard for the borrower to prepare a reliable future budget. 

However, there are instances in which this form of a mortgage can prove beneficial –such as when there are expectations of the market rate going down. You could also use this option if you are financially stable and can handle large, sudden increases in rates. 

Best Financial Institutions for Mortgages in the UAE:

There are many financial institutions within the UAE that offer mortgage solutions, but in the ADIB (Abu Dhabi Islamic Bank) is perhaps the best one for buyers interested in equity release. 

ADIB allows potential homeowners in the UAE to add to their portfolio of real estate investments and obtain the equity required to construct their dream home or initiate their desired business. Furthermore, ADIB’s alliance with DAMAC means that we can help both expats and nationals get the lowest mortgage rates for your UAE property. 

This alliance has allowed the bank to present an interest rate of mere 1.99% over a period of seven years. This interest rate applies to any property that is purchased by a potential UAE resident through DAMAC. Moreover, you do not need to endure any processing or evaluation fee. 

All in all, this arrangement ensures that your loan acquisition is cost-effective. If you are a UAE national, you can obtain financing equal to a maximum of 85% of the value of your property, while expats can obtain loan amounts equaling 80% of the property value. The maximum loan tenure is twenty-five years. 

Alongside ADIB, there are several other renowned financial institutions that are offering equity release options for UAE residents. These include:

  • Emirates NDB: This is one of UAE’s premier government-owned banks, and offers loans of up to AED 15 million, with a loan-to-value mortgage ratio of up to 75%. Additionally, applicants can also opt for pre-approvals. 
  • Mashreq: The Mashreq private bank is an extremely recognized one throughout the UAE, and has loan options for both expats and nationals. Any self-employed or employed expat resident who earns a minimum monthly income of AED 15,000 can also easily apply for these loans.  You can apply for a loan amount of up to AED 10 million. 
  • HSBC: Yet another prominent financial institution, the HSBC offers mortgage options to anyone who earns a minimum income of AED 15,000. However, the mortgages are subject to particular conditions and terms. 

Mortgage Calculation:

Calculating the mortgage for your residential property can be a fairly complicated job. However, you can get an idea about your potential monthly payments through paying the loan servicing prior to application. To benefit from this service, you can contact DAMAC’s Mortgage Assist experts. 

Furthermore, DAMAC Mortgage Calculator can also help you in this regard, which you can use to calculate your monthly mortgage payments. Furthermore, you can use the calculator for any property of your choice. 

Application Process:

Fortunately, applying for a real-estate loan in the UAE is fairly easy, as the financial institutions will be doing the bulk of the work for you. All you have to do is:

  • Find mortgage brokers and lawyers within the UAE and obtain their assistance in arranging all the required documents. 
  • The next step is to submit the documents to a bank or financial institution of your choice. 
  • At this point, you can expect to receive updates regarding property prices. 
  • You will be observing the properties within your range and choose one that fits your needs best. 
  • By now, the down payment option will be available to you, as well as the access to the loan servicing repayment schedule. 
  • Now, you can choose to obtain DAMAC’s Mortgage Assist services to purchase a property. If you do so, the entire process will become much more swift and easy, comprising the below steps:
    1. Connecting with DAMAC and giving details regarding your income.
    2. Choosing from a large property list. Once this has been done, the process shall commence according to your convenience. 
    3. After the loan approval, you will need to pay the down-payment money. After that, you can gain access to your repayment schedule whenever you want to. 

FAQs:

Are there any potential drawbacks of the equity release option?

Ans) Although equity release is immensely beneficial for residents looking to buy property within the UAE, it is not without a few drawbacks – the first of which is the possibility of quickly-accumulating

interest. Moreover, if you obtain a loan against to your residence, it will reduce the amount that you can use as inheritance for your children and other successors. 

Is the equity release option a safe one?

Equity release is fairly safe, financially. The main reason for that is that equity release options are strictly regulated by the FCA (Financial Conduct Authority). In addition, even in the ERC (Equity Release Council) closely monitors this mortgage option. If you want to become a part of the planning team for equity release, that can also be done. 

Lifetime mortgages allow residents to enjoy the benefits of personal property and the value appreciations that come with it. It is also possible to choose an equity guarantee with no negative. This guarantee ensures that a borrower never owes more money than what their property is worth. 

What is the interest rate percentage for equity releases?

The usual interest rates for mortgage equity releases in the UAE are approximately 5%. However, there are certain rates that can even go below 3%. You can also benefit from early-repayment, though you might have to pay an additional charge for that. 

How long is the equity release process?

The length of the process will primarily depend on your chosen plan. However, in most cases, it will take around 8 weeks to release your home equity. 

Does equity release have any better alternatives?

While equity release does have several alternatives, they might not necessarily be better. Some of these options are: remortgaging, selling assets, shifting to smaller residences, and utilizing your savings. 

Is it possible to sell off the house after obtaining equity release?

You can sell your house off, even if it has an equity loan attached to it. However, this could be your home’s easiest selling price. Furthermore, you might be able to generate enough revenue to pay the entire equity loan off. However, since you will not be able to use your house as collateral, you will need to make the equity loan payment before selling off the house. 

Are there any equity release plans that are better than others?

If you reside within the UAE, you should probably consider lifetime mortgage, since it is, by some distance, the most desirable equity release type. For this reason, this plan is offered by some major brands of the country, renowned for their pension and insurance plans. 

You could also opt for home reversion schemes. This scheme allows you to sell your entire property – or a particular part – at a price that is lower than market price. In return, you can get a regular income, a lump-sum amount – or both – without having to pay any taxes on that amount. Moreover, you will be able to continue living in your house as a tenant but without having to pay any rent. 

How is equity release applied practically?

Equity release plans allow you to unleash  of your property true value. This can be achieved through multiple policies. In fact, it is even possible to release any tied-up home equity. Furthermore, if you are at least 55 years of age, you will not have to pay the full mortgage amount.

Is it possible to release equity to buy a second house?

This is certainly possible. You can remortgage property with the intent of releasing its equity and buying another property. In fact, this is an immensely common method used by investors looking to increase portfolios. 

Final Word:

So, to summarize, we hope that this blog will serve to answer all your questions regarding home equity release loans in Dubai. If you want to obtain the best possible equity release rates for your next UAE property, please feel free to reach out to us.