What is the difference between Flat and Reducing Interest Rates?
Rates on home loans can be calculated in two ways - as a reducing rate or as a flat rate. With a flat rate, the rate is calculated on the entire principal amount of a loan (the full, original amount borrowed) whereas with a reducing interest rate, interest is charged only on the outstanding amount of the loan on a periodic basis.
Flat interest rates are normally lower than the reducing balance rate and therefore considered misleading. When it comes to comparing loans, the best way to compare their true cost is to convert everything into the Reducing Interest Rate equivalent (click here
for more information)
How do I choose a home loan provider?
Compare, compare, compare! Use our smart comparison tools to choose the best home loan for you. You may also wish to consider using a mortgage advisor such as Best Rate, who will do the hard work for you, recommend the best product for your needs and help you through the entire process from consultation to completion.
Do I need to take out insurance on my home loan?
Yes, both life insurance and property insurance for those taking a home loan is mandatory. The policies must cover the tenure of the loan, the loan value and be active with payments fully up to date.
Do I need to transfer my salary to my home loan provider?
Not necessarily but doing so will often get you a better rate as you are then considered less risky to the institution.
How long do I have to settle my home loan?
Tenures range on mortgages so make sure you take into account the tenure period when choosing a home loan product. Be sure to consider early settlement fees as well, in the event that you are in a position to make early repayments and settle your debt early.
Do I need to have a down payment / deposit?
Yes. In the UAE, it is a requirement to pay a down payment or deposit. The amount required will depend on whether you are a UAE national, resident expat or non-resident as well as your employment status and whether you are a first time buyer.
What is an early settlement fee?
This relates to the fee applicable if you decide to pay off your loan early. If, for example, you take a home loan for 25 years but expect to be in a position to pay if off before then, any early settlement fee becomes an important factor in choosing your home loan provider.
What is the difference between a Fixed Rate and a Variable Rate home loan?
With a fixed rate home loan, you repay a fixed rate for a set number of years. With a variable rate, the repayment amount varies with the market rate, which means your repayments can change as the rate changes.
What key criteria should I consider before taking out a home loan?
- Fixed Rate v Variable Rate – a fixed rate provides more stability and is best if you expect interest rates to go up whereas with a variable rate, you can benefit when the interest rate goes down
- Loan amount – this will depend on a number of criteria including your financial situation, deposit amount and the price of the property you wish to purchase
- Down payment – consider what the required down payment / deposit will be in order to help you set a budget
- Interest rates – do flat or reducing interest rates apply? See below for details of how these differ
- Tenure – this is the length of time you have to pay back your loan and will vary depending on the bank and / or loan product
- Minimum salary requirement – UAE banks normally impose a minimum salary required to take out a home loan so select a provider from those whose minimum salary requirement is less or the same as your salary
- Fees – consider all fees applicable such as arrangement fees and early settlement fees
- Other benefits – does the bank provide options for a payment holiday
What documents do I need in order to apply for a home loan?
Your residency and employment status will determine the exact documents you will require to submit on application. Your chosen loan provider will provide you with all details.