Equity Release and Mortgage Buyout: What is it and how does it work?

If you're an investor in Dubai, you may be familiar with mortgage refinancing and the various options available.

Two of the most popular choices are Equity Release and Mortgage Buyout.

These loans can offer similar benefits to refinancing, such as taking advantage of lower interest rates, maintaining a fixed-rate mortgage, adjusting the mortgage term, or freeing up funds to cover other expenses.

So, what’s an equity release?

It is a loan that you take out using your property as collateral. The bank will offer a payment plan based on the loan amount chosen, typically with interest paid on the principal loan amount. This payment plan can last up to 25 years and is used to pay off the mortgage or buy back the property.

It's important to note that if the loan is not paid back on time, the bank or lender may take possession of the property.

What are the benefits of an equity release loan?

There are multiple advantages of an equity release loan:

Lower rates: When you take out a loan against your property, you can often get lower interest rates compared to a personal loan. However, it's important to keep in mind that banks in the UAE have restrictions on certain aspects of lending. Therefore, it's advisable to check if the purpose for which you require the loan is permitted before proceeding with the application.

Larger liquidity: If you're looking for a way to finance your next home, equity release loans can be a great option. With these loans, you'll receive a large sum of money all at once, making it easier to make a down payment. Remember that the down payment for a second home is usually higher than for your first property, generally ranging from 35-50% of the second property's value.

Tax free: Great news! In the UAE, you are not required to allocate a portion of your loan for taxes. Your equity loan will be completely tax-free.

Who is eligible for an equity release loan in the UAE?

Cash buyers who purchase properties without finance are eligible for an equity release loan.

It is not just cash buyers who are eligible for equity release loans. Lenders may also assess the credit score, source of income, and current liabilities of other investors to decide their eligibility for such loans.

If your credit score is in good standing and you have a reliable source of income, whether you are retired, employed, or self-employed, you stand a good chance of approval for an equity release loan.

It is important to note that just because you qualify for the maximum loan amount, it does not mean that you are required to take out the full amount.

How much can you borrow against an equity release loan?

You can typically borrow up to 85% of the current value of your property as a loan.

Different banks have different terms and conditions when it comes to equity release loans. For example, resident expats may be limited to a maximum loan amount of 60-80% of the property value. Non-residents, on the other hand, may face even stricter conditions, such as a borrowing limit of only 50% of the property value.

Take a look at our foreign investors' guide to mortgages in the UAE.

What’s a mortgage buyout - you might ask?

If you currently have a mortgage and are looking to switch to a different lender for better rates or conditions, a mortgage buyout may be the solution for you.

This process involves settling your existing loan and replacing it with a new loan from a different bank that offers more favourable terms.

Can you combine a mortgage buyout with an equity release?

Yes.

As the value of your property increases, you can benefit from more favourable interest rates, better loan terms, and access to a higher amount of cash. However, it's crucial to plan for the long term and ensure your financial security is safe should unfavourable market conditions arise.

How can we help you?

We hope that you now have a better understanding of Equity Release loans and Mortgage Buyouts, should you require any further information Allsopp & Allsopp Mortgage Brokers have a specialised team of experts here to help you plan your next steps!

If you’ve got a mortgage on your mind, get in touch with our Head of Mortgage Services, Stuart Roe for the latest market insights and financial offerings.

And when you are ready to make your next property investment, take a look at some of our live listings.