If you are going through the process of applying for a mortgage in UAE or thinking about it, learning the lingo can be a headache. You may hear phrases you've heard before but are unsure what they mean. You may come across concepts that are called something entirely different in your home country. Here we break down refinancing and equity release so you understand what they both are and the difference between the two mortgage products.

What is refinancing? 

Refinancing is more commonly known as a buy-out in the UAE. A mortgage buyout is a straightforward form of refinancing, primarily designed for individuals with an existing mortgage who wish to transition to a different lender to benefit from superior rates, terms, and/or conditions. A mortgage buyout involves settling the debt with the initial bank and replacing it with a new loan from a different bank.

What is equity release?

• An equity release loan, also termed a loan against property in the UAE, allows you to borrow a substantial sum of money by leveraging your property as collateral. You utilize the accumulated home equity or the percentage of the property you possess.
• For instance, having 100% home equity implies full repayment of your mortgage loan and owning the property's title deed. Through an equity release loan, you can access a portion of the accrued equity while retaining ownership of the property, rather than waiting to sell it to realize its value.

How does it work?

The lender typically provides a lump sum of money based on the property's value and your financial situation. Subsequently, you make monthly payments, including interest, to repay the loan over a predetermined period, usually ranging from 5 to 25 years. Failure to make these payments could result in the lender seizing your property. Essentially, it resembles taking out a personal loan that can be utilized for specific financial needs.

Benefits of equity release loans

• Given that the loan is secured by your property, the primary advantage is that lenders typically offer lower interest rates compared to unsecured personal loans. People employ the funds for a new purchase or to renovate an existing property. Some banks may release equity if you are investing in your business. UAE banks impose restrictions on the use of the funds, so it's essential to verify beforehand.
• Having a lump sum of money proves especially beneficial when aiming to purchase another property in the UAE, considering the higher down payment requirement for subsequent property purchases. The down payment for a subsequent property ranges from 35-50% based on your status as a national, resident expat, or non-resident. Alternatively, if you surpass the age limit requirements and are ineligible for a new mortgage, an equity release loan could serve as an alternative means to finance your purchase.
• This option is also favored because the released funds are tax-free, allowing you to utilize the equity without allocating a portion toward taxes. Equity release offers greater flexibility and financial freedom, enabling you to optimize your funds for the highest return on investment.

Eligibility

• In the UAE, you can obtain an equity release loan irrespective of whether you are currently repaying a mortgage loan on the property. Some investors in the UAE purchase the property outright with cash, and they can still opt for an equity release loan, which places a mortgage on the property and releases a specific percentage of its value. Others opt for a mortgage loan to finance their property acquisition. Even in this scenario, they can opt for a remortgage with an equity release loan, particularly when the property's value significantly increases due to market conditions.
• Each bank establishes its own conditions for equity release loans, often limiting the maximum loan amount for resident expats to 70% of the property's current value.
• Non-residents may encounter stricter conditions, such as a borrowing limit of 50% of the property value. The lender assesses your credit score, source of income, and existing liabilities to determine the loan amount. As long as you possess a good credit score and a stable income source, whether as a retiree, employee, or self-employed individual, you stand a good chance of being approved for an equity release loan. It's important to note that you are not obligated to take the maximum loan amount merely because you qualify.
• Combining a mortgage buyout with an equity release loan is often feasible if your property's value has significantly appreciated. By doing so, you can enjoy a better interest rate and terms, alongside receiving a lump sum of cash. This approach can prove advantageous both in the short and long term, provided you carefully consider your financial situation and the prevailing market conditions.

How Can Holo Help?

Now that you possess a comprehensive understanding of equity release and mortgage buyout loans in the UAE, you may be inclined to proceed with a mortgage refinance. At Holo, our team of mortgage specialists can aid you in exploring all mortgage services including refinancing options, encompassing equity release and mortgage buyout loans.

Regardless of whether you are a UAE national, resident expat, or non-resident, a mortgage advisor at Holo possesses the expertise to assist borrowers in various circumstances. Utilize our mortgage calculator in UAE to estimate your monthly payments under different loan conditions.

Working with Holo Mortgage Consultant is free. Start exploring your options today!