Dubai developers start offering 0.8-1.0% monthly payment plans as mortgage costs soar

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Dubai: 1% per month payment plans are back in full force as potential Dubai property buyers juggle the various options available to them even as the cost of financing a property purchase by mortgages is becoming more and more expensive.

“1% deals coming directly from developers get high buy-in – and some developers are even opting for less than 1%,” said one real estate agent. “There is a developer offering a 0.8% contract with a seven-year payment plan (on properties valued at 1.2 million dirhams and above). Now that the bar has been lowered by 1%, it won’t take long for others to join us.

“They will need it, as end buyers will find the constant rate hikes imposed by the US Federal Reserve impacting their budgets.”

Market sources say a combination of extended payment plans and 0.8-1.0% monthly installments might still be the best way for cost-conscious new buyers to get in.

Existing mortgages

But what about those who have existing mortgage payments on their home purchases? These buyers and UAE banks would do well to think about mortgage refinancing. “A few banks are introducing cutting-edge products to encourage the mortgage redemption process with minimum transfer cost to the owner,” said Dhiren Gupta, Managing Director of 4C Mortgage Consultancy in Dubai.

Dhiren Gupta, Managing Director of 4C Mortgage Consultancy in Dubai
Image Credit: Supplied

Once the buyer of the property has decided to refinance, comes the tricky part. Sure, they should opt for a blocking period – but how long should that be?

Currently, banks in the UAE offer 1 to 5 year rate locks. The obvious answer would be to fix the mortgage rate for five years, offsetting further rate hikes from the US Fed. The downside is that the current high rate environment doesn’t need to last – and the mortgage taker will end up with a fixed rate when the rest of the market sees rates fall. A bit of a Catch 22.

Rate variations

UAE banks offer fixed rates starting at 3.49% for one year, 3.99% fixed for three years and 4.49% for five years. In addition, there are variable rates starting from 0.49% linked to EIBOR (Emirates Inter-Bank Offered Rate).

Should I pay earlier?

“It depends on individual preferences,” Gupta said. “It makes sense to settle some of the outstanding amount when you have excess funds to reduce the current loan outstanding more quickly.

“Ideally, it is advisable to reduce the term of the loan by making a partial settlement. This would increase the principal’s contribution to the monthly payment, which would result in a reduction in interest charges on the principal amount.

Most banks in the UAE have capped prepayment at 20-30% of the outstanding loan without penalty charges. Any other payment before the agreement with the lender could incur a charge of 1% of the prepaid amount.

Mortgage takers face difficult calculations, and none of the choices available to them are easy enough. That is, until the US Fed finally halts the current round of rate hikes.

And when it comes to new property buyers, the question for them is whether they buy direct from the developer and accept the payment plans, or opt for a mortgage.

With Dubai developers being aggressive on the 1% payment plan, buyers have options. Even that of 0.8%.

Have you decided to refinance a mortgage? Here are the fees

The exit cost for the current bank is 1% or Dh10,000, whichever is lower. In most cases, this cost is covered in the liability letter and paid by the new lender, which is added to the new loan amount.

There is an appraisal fee of Dh2,500-Dh3000, excluding VAT.

The Dubai Land Department Mortgage Registration Fee would include the release of mortgage charges varying from Dh1,290 for a conventional mortgage and Dh1,560 for Shariah-compliant property finance, as well as a new registration fee of 0 .25% of the new loan amount. Fees may vary.

A “trust fee” of Dh4,200 is applicable in Dubai.

Issuance of a new title deed in Dubai would cost 580 Dh.

Most banks do not charge any arrangement or processing fees. “Only a few banks are willing to refund your assessment and settlement fees after the conversion process has been completed,” said Dhiren Gupta.

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Elaine R. Knight