Remortgaging involves replacing your current mortgage with a new one. This can be done either with your current lender or a new one. Basically, it is the process of transferring your existing mortgage debt to a new mortgage product. Remortgaging can help you secure better interest rates, reduce your monthly payments, or unlock equity in your property.
When Should You Consider Remortgaging?
There isn’t a one-size-fits-all answer to when you should remortgage. It is generally a good idea to review your mortgage periodically to ensure you are getting the best possible rate. This is particularly important in UAE, where the mortgage market can be quite dynamic.
Many people believe they can’t remortgage during a fixed-rate period without incurring hefty fees. However, in the UAE, the process is more flexible. The Central Bank of the UAE sets a standard exit fee, applicable whether you are in a fixed-rate period or not. Thus, it is always worth exploring if better deals are available, even mid-term.
How to Determine If Remortgaging Is Worth It?
To decide if remortgaging makes sense, you need to weigh the potential savings against the costs involved. Here are the three main factors to consider:
- Current vs New Interest rates: Compare the interest rate on your existing mortgage with the rates available in the market. Even a small reduction in interest rate can lead to significant savings over time.
- Costs of remortgaging: These include various fees such as property valuation fees, mortgage registration fees, and others. Make sure to factor these into your calculations.
- Exit penalties: The UAE Central Bank allows lenders to charge an exit fee upto 1% of the outstanding mortgage balance or AED 10,000, whichever is lower. These penalties should be considered when calculating potential savings.
A mortgage advisor can help you perform a detailed cost-benefit analysis to determine if remortgaging is the right move for you.
Steps to Remortgage in UAE
Step 1 : Compare Interest Rats
Start by comparing the interest rates offered by your current lender and other lenders in the market. Your current lender might offer you a competitive rate to retain your business, which can serve as a benchmark when comparing other offers.
Step 2 : Calculate Remortgaging costs
Remortgaging is not free ; it involves several costs, including:
Mortgage De-Registration Fee : AED 1,590
Property Valuation Fee : AED 2,500 – 3,000 + VAT
Mortgage Re-Registration Trustee Fee:
AED 2,000 for properties below AED 5,00,000
AED 4,000 for properties above AED 5,00,000 + 5% VAT
These costs should be taken into account when deciding whether remortgaging is beneficial.
Step 3 : Understand Exit Penalties
Be aware of the penalties for exiting your current mortgage early. As mentioned, the Central Bank of the UAE caps these at 1% of the mortgage amount or AED 10,000, whichever is less. These fees will typically be added to your new mortgages, so it is essential to factor them into your calculations.
Additional Considerations: Life Insurance Premiums
When you take out a mortgage in the UAE, you are required to have life insurance to cover the mortgage in case something happens to you. Changes introduced in 2020 regarding how life insurance premiums are priced could result in significant savings for those who took their mortgage before these changes. If this applies to you, remortgaging could lower your life insurance premiums, adding another layer of savings.
The Benefits of Remortgaging
Remortgaging can lead to significant financial benefits, including:
- Lower interest rates: Reducing your interest rate can lower your monthly payments and the total amount of interest paid over the life of the loan.
- Access to equity: Remortgaging can allow you to access the equity built up in your property, which can be used for home improvements, debt consolidation, or other financial needs.
- Better terms: You might secure more favorable terms, such as switching from a variable rate to a fixed rate for more predictable payments.
Overcoming the Hassle
While remortgaging may seem like a hassle, the potential savings are often worth it. Engaging an independent mortgage advisor can simplify the process. They can analyze your costs and savings, and find the best mortgage products for you.
Regularly reviewing your mortgage and considering remortgaging can lead to significant savings. By staying informed and seeking professional advice, you can make the most of your mortgage in Dubai and the UAE, ensuring it continues to meet your financial needs and goals. Remember, the mortgage market in the UAE is competitive and dynamic. Regularly checking your mortgage terms and conditions against current offers can save you thousands of dirhams over time. Don’t hesitate to explore remortgaging to make the most out of your mortgage in Dubai and the UAE.