This is a question we always get asked by our clients. Unfortunately, the "best deal" does not exist. The best deal for one person's circumstances may be very different from the next person's.
The lending process in the UAE is typically broken down into two main options.
A fixed-rate mortgage or a variable-rate mortgage: which option is better for an individual will depend on their plans for the property, their appetite for risk, and if they have experience in the property market.
The breakdown of these options is shown below -
Typically, the banks will offer a fixed rate for a duration of 1-5 years. During this period, the interest rate you pay and the monthly mortgage payments will not fluctuate.
After the fixed rate period, the rate reverts to a variable product. This is typically made up of the bank's profit plus an EIBOR rate (normally three months' EIBOR, but this varies by bank).
Once you come out of the initial fixed-rate period, you have a number of choices -
- Stay on the variable rate if it is attractive.
- Renegotiate with your existing bank to get another fixed rate.
- Switch your loan to a different bank if there are more attractive options on the market.
Once you have completed your fixed period, Holo Representatives will assist you in making this assessment.
Fixed rates are good for those who are risk-averse and would like to budget for their expenses. You may pay a higher rate to guarantee the security of fixed payments.
NOTE: There are no fixed rates for the duration of a mortgage in the UAE. If you hear this, look into what is being offered.
These hold no fixed elements. Your loan will start at a rate that can fluctuate from the outset.
Your deal will be made of bank profit plus Eibor (in most cases). Your payments will go up if the interest rates in the region increase; however, you could also benefit from rate reductions if the rates come down, as long as the lender does not put a cap on the minimum rate.
Variable rates are good for those looking to pay the lowest bank margin and who are not concerned with budgeting for their monthly payments.
Lenders with special offers running will sometimes offer zero processing fees; these are not the norm, however. Typically, banks will offer from zero to one percent of the loan amount as a processing fee.
Lenders will allow you to make lump-sum overpayments in order to close your loan faster. Each bank has a slightly different policy on this. Some will charge you 1% for any overpayments, while others will allow up to 30% of the outstanding balance to be repaid each year with no charge. If you have plans to close the loan quicker, this is something to factor in.
Life insurance is mandatory with any home loan in the UAE. Some lenders will set up a basic policy to cover you in the event of your death through their in-house relationships. Other lenders will allow the external assignment of insurance policies from international providers.
The policy will need to be taken specifically for the loan you are taking, but you can shop for the best product that fits your needs.
Holo has contacts within the insurance market who can assist with your requirements.
Offset home loans are very popular in more established markets but are fairly new to the UAE.
These loans would suit applicants who have cash deposits in their current accounts. By operating a current account out of the same account as the mortgage, the savings in the account "offset" the total payments due on the mortgage.
EG: If your home loan is AED 1 million but you have AED 300,000 in the account, then your interest payments are only on AED 700,000 rather than AED 1 million. This allows the loan to be paid off quicker.
A Holo mortgage specialist can guide you on this if it sounds interesting.
You can find all of these products built into the Holo Mortgage Calculator, and our experts are always on hand to offer the best guidance.
This blog is for educational purposes, but everyone's case is unique, and local guidelines and regulations may change. Our mortgage advisors can help you with any question you may have and have the latest advice. Get in touch.