What you should know before securing a mortgage in Dubai

Buying a property can be a quite exciting yet daunting process. Since one of the key steps in purchasing a home is securing a mortgage, we decided to speak to Rosie, our dedicated Mortgage Advisor and share a few tips you should consider before getting a mortgage for your new home.

1. Get your down payment ready 

Before getting a mortgage, you need to be aware that you will have to save up quite a lot. First of all, potential buyers need to consider the initial fees necessary for getting a mortgage. 

These fees typically include 4% transfer fees, a 0.25% mortgage registration fee, plus 2% real estate commission, as well as a loan establishment fee of up to 1%. These fees, therefore, roughly translate into 5-7% of the total property price. There are ways of loading these fees onto the mortgage itself; however, it is best to speak to a mortgage advisor on the best way to do this. 

Consider between fixed or variable rate mortgages

Before paying your down payment, you should be aware that there are two options for getting a mortgage, a fixed-rate mortgage or a variable rate mortgage. A fixed-rate mortgage is when the interest rate of a mortgage is kept at the same rent for a certain length of time. A variable rate mortgage is when the interest you pay is linked to 1, 3, or 6 month Emirates Interbank Offered Rate (EIBOR) with a fixed percentage added to the bank. This means the interest you pay can go up or down depending on the EIBOR. Current mortgage interest rates are around 2.99-5%. The UAE dirham is pegged with the US dollar, which means the UAE interbank rates follow that of the US Reserve. This has big implications for UAE interest rates as the US reserve have recently been making a move towards ending the very low-interest rates that have been seen over the past decade. As such, buyers might want to consider getting a fixed-rate mortgage in order to secure a low-interest rate whilst they remain low. 

That being said, there are some downsides to fixed rates. The longer the fixed-rate is set for, the more costly it is. Buyers should be wary of revision rates. These are the interest rates that you will pay once the fixed-rate period expires, which are most often linked to the 3, 6 or 12-month EIBOR, plus the margin set by the bank. Whilst low upfront rates may seem reasonable; they may end up being more expensive in the long run due to the revision rates.

2. Get pre-approval 

Pre-approval is essential in ensuring you fit the criteria of the bank and that you can borrow the right amount of money. This can be done by either going directly to the bank or by going through a mortgage advisor, who will get the approval arranged. Your advisor will have a  discussion about your mortgage requirements, your income and your monthly out-goings in order to decide what is the best route for them to take. 

Prospective buyers should decide on their budget and ensure they get pre-approval from their chosen bank before proceeding with property searching. A sales agreement requires a 10% down payment, as such if you proceed with this stage of buying a property but end up getting refused by the bank, you will need to forfeit the 10%. 

Buyers should also make sure they insert a clause in the purchase agreement (MOU – Memorandum of Understanding) that the purchase transaction is subject to the bank’s final approval and also subject to the bank valuing the property at the agreed purchase price. This is to ensure that the deposit is safe should the bank decline the mortgage or consider the property to be overvalued and therefore decide not to give the buyer the full mortgage amount needed.  By getting pre-approval, you will be able to confidently make offers on a property without worrying if you will be able to secure the necessary finance.

Get all the paperwork 

Getting a mortgage requires a lot of paperwork. Whilst it can vary from institution to institution, this generally includes providing a copy of your passport, visa and Emirates ID. You will also need a salary certificate from your work, as well as payslips, bank statements from the last 6 months, and your latest credit card statements. Residents will also need to show proof of address and this might include a copy of a DEWA bill or a tenancy agreement.

3. Use a mortgage broker

A mortgage broker will understand the market as well as understand your requirements. They will be able to place you with the best mortgage available with whichever bank suits you. It can be quite tricky and complicated navigating the different banks and weighing up the options for a mortgage and figuring out what needs to be done. Whether it’s the decision between fixed-rate and variable-rate mortgage, calculating all the different costs, or deciding which bank to go for. Therefore a mortgage broker will help explain any complicated language that you may not understand, as well as explain how the process works, from beginning to end. We suggest that you speak to a few different brokers in order to see who you like and who you want to use. As a potential buyer, you should also consider using a mortgage calculator to determine your monthly payments. This will help you figure out what mortgage you can afford and what type of mortgage is best for you. Using a mortgage calculator will help you plan for when you eventually decide to get the mortgage. Buyers must prepare a monthly budget and be aware of all of their outgoing expenditures before embarking on this process.

If you want to calculate your monthly mortgage repayments, you can visit our mortgage services page.