Early home loan repayment charge fixed at 1%

Even though your mortgage contract in the UAE may specify early repayment charges of between 2 and 4 per cent of the outstanding amount, you will not be paying these charges at that rate anymore.

The UAE Central Bank has now fixed early home loan repayment charges at one per cent of the total outstanding, or a maximum of Dh10,000, top banking sources told Emirates 24|7.

“The UAE Central Bank has put the early repayment charges for mortgage at 1 per cent of the outstanding amount or Dh10,000, whichever is lower,” a senior banker at a Dubai-based bank told this website.

The new regulation, in fact, saved Dh10,000 for Ahmed Saheer, an owner of apartment in Jumeirah Lakes Towers (JLT).

“I had the cash and approached the bank for early settlement. When I visited the bank’s branch, the officer told me that they would charge only one per cent of the total outstanding amount as per the UAE Central Bank rule.

Saheer explains the reason he closed his home loan early was because the bank had given him the loan at a fixed interest rate for the first three years and thereafter, the interest was to go up by at least by 24 per cent, as per the agreement, with the bank reserving the right to revise the rate twice in a year.

“I was paying a fixed amount for the first three years and I was fine with that. I started saving so I could repay the loan within three years as the bank agreement stated that my interest rate would be a minimum of 6 per cent after three years or even higher,” he added.

“The early settlement charge, as per my contract, was 3 per cent, but the new rule saved me Dh10,000 as I cleared an outstanding of Dh500,000 to settle my home loan.”

The fixed interest rate offered to Saheer was 4.99 per cent.

In 2013, the Central Bank announced it was restricting the amount of cash that homebuyers could borrow as it took the step to cool down property prices and curb speculation.

In 2013, Dubai’s property prices rose by over 20 per cent, the fastest pace in the world, while Abu Dhabi also saw prices rise by over 15 per cent.

The mortgage cap restricted loans to expatriates and Emiratis at 75 per cent and 80 per cent of a property’s value, respectively, if it was worth less than Dh5 million.

For a property that was over Dh5 million, the limit was set at 65 per cent and 70 per cent, respectively.

The maximum period of the mortgage was limited to 25 years with the maximum age at the time of the last repayment was put at 65 years for expatriates and 70 years for the UAE nationals.

The mortgage cap for second purchase was set at 60 per cent of a property’s value while mortgages for off-plan properties were limited to 50 per cent.

Besides, home buyers were not allowed to seek personal loans or use their credit cards to make any down payment requirements for property purchase.
 

Also Read: New UAE mortgage law: No personal loan or credit card for property down payment

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