Are you taking a home loan in UAE? If yes, then you must be prepared for the costs associated with taking a home loan. The fees associated with a home purchase includes closing costs, loan discount points and prepaid items.
The closing cost varies by location and is generally 2%-3% of the loan amount. The cost is based on the specific line items related to your loan application and lender fees. The closing costs include loan origination fee, credit report fee, loan application fee, title services fee and lender’s title insurance premium, owner’s title insurance premium, survey fee, appraisal fee, government recordation fees and transfer taxes and finally the attorney fees.
Loan discount points on the other hand is 1% of your loan account. Check your loan agreement if you have agreed on to this just to get a lower interest rate. This is usually payable at the closing of the loan.
Lenders prefer to pay property taxes and homeowner insurance as they do not want to risk a default on payment as your house is collateral to them. On the day of settlement, the lender requires you to pay the amount paid to cover property taxes and homeowners insurance in full. Depending on the day of closing, you will have to make a prorated payment of interest on the mortgage from closing date till the end of the month. You may also have to pay a condominium fee or homeowner’s association fee. This falls under prepaid items.
The EMI is the most important cost category. It depends on two key factors i.e. the interest rate and the time period.
Lower interest rates will result in lower EMIs. Even a slight difference in the interest rate will save you thousands of Dirhams. So, before you choose a home loan, look around for different options and consider banks offering lower interest rates. You should lock-in when interest rates are at their lowest. Sometimes you will be offered a fixed interest rate that stays the same throughout the tenure or you will be offered a floating interest rate that varies with the change in the market.
The next important factor is the time period. The banks in UAE offer home loans for a period of up to 25 years. The shorter the period, the lower the interest payable and higher the EMI.
It is always advisable for a borrower to check how the EMI for a particular loan period will be paid. It is of utmost importance that he makes sure he can pay the EMI without compromising in personal comforts during that period. He must make sure that he won’t be defaulting on any of the payments.
For this purpose, he can make use of online EMI calculators that are available on various sites and these sites will also have information about the different products offered by various banks and their interest rates will be mentioned as well.
You can also consider refinancing your loan to reduce EMIs. But, keep in mind that you will be incurring a balance transfer fee and valuation and processing fee payable to the new bank. You can also save up on balance transfer fee and other fee by asking your existing bank to refinance your home loan for a lower interest rate. however, not all banks in UAE follow this.
Lastly, read through the whole document to check for any hidden fees or charges like some processing fee and the prepayment charges etc. and discuss it with the lender for clarity. It is important to make an informed decision with regard to taking a home loan.