We all know that a mortgage is a loan taken from the bank to pay for a property, but for most of us, this is where our knowledge of mortgages begins to diminish.
When the plans of buying your first home edge nearer, you may find yourself having a play around on bank’s online mortgage calculators and finding out what your initial mortgage repayments will be. Then you jump onto a property portal and see what properties are within your reach – all very exciting!
As the dream of your ableness to step foot on the property ladder is starting to become a reality, the research into a mortgage truly begins. You will come across terms such as fixed rate, variable rate, bank margins and EIBOR (Emirates Inter Bank Offer Rate) and you will begin to try and understand what these mean to you.
You can have meetings with different banks and listen intently as they talk you through their competitive rates and the benefits you receive whilst taking a mortgage through them, or you can have an open and honest chat with an independent mortgage consultant.
These initial meetings can be rather overwhelming, and it becomes very easy to sign up to a mortgage because you have been convinced it’s the best deal without understanding what the repayments, insurances, processing fees and early settlement fees really mean and how they can affect you.
This is a common mistake that many first-time buyers make when getting a mortgage in Dubai. An independent mortgage consultant is the best way forward when you are trying to get your head around borrowing the largest amount of money you’ve borrowed in your life!
An independent mortgage consultant who is seasoned in the market will already have preferential rates set up with a number of banks. They can tailor a quote entirely revolved around your circumstances and explain exactly what you will be paying, what the fees are and where you can save thousands of AED.
To understand the mortgage process, it is easier to see it as a chain. The bank will borrow money from the Central Bank who work using EIBOR, banks then add their own profit margin which is combined with the EIBOR rate as a variable rate to charge to clients after their attractive fixed rate is complete.
The most important part of the mortgage choosing process is understanding what the rate will be when your fixed rate changes to a variable rate. Many banks will entice clients with a very attractive fixed rate over 3 years for example, but when they add their own profit margin to the EIBOR, the variable rate can often become a lot higher than the previous fixed rate. You will be paying a variable rate for the majority of your mortgage which, in many peoples opinion makes the bank margin the most important rate to look at before signing a mortgagecontract.
Take a look at the comparison below for a 20-year mortgage borrowing 75% of anAED 2,500,000 property as an example:
On top of the follow-on bank margin, you must also be aware of the processing fees which can be anywhere from 0.5% to 1% of the mortgage value.
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