Gulf News September 26, 2009
27 September 2009
Gulf News: "Key Decisions in Taking a Mortgage"
With the housing market seemingly bottoming out in Dubai I am considering buying a property. I keep seeing adverts for mortgage deals but am unsure what type of mortgage, or insurance products I will need to make a purchase.
The Dubai housing market has become more attractive for buyers in the last six months, with the fall in property prices in the wake of the global economic crisis. Banks are now also starting, very slowly, to ease up on recently imposed lending restrictions, making mortgages more accessible and attractive to potential buyers.
There are a number of factors you must take into consideration before agreeing to a mortgage, and speaking to an independent financial advisor is always a good way to begin. He or she can guide you through the different mortgage products on the market, and make sure your overall finances are in line with any proposed mortgage repayment plan.
Mortgages in the UAE are becoming more competitive, with different incentives and deals. When making a decision there are three key things to determine, these include the period of time you want to repay the mortgage over. In Europe this is normally 25 years, however you can chose a shorter time period or a longer one – with some UAE lenders now offering 30 year deals.
Going for a fixed or variable interest rate is another important decision, paying a slightly higher fixed rate for the sake of financial stability appeals to some people, whereas others are happy to take their chances with a variable rate, which moves up and down in line with changes to the central bank’s base rate. What percentage of the total cost of the house you want to pay as a deposit is also central to a mortgage decision, it is worth taking note here that post-recession higher deposits of up to 30 percent are becoming the norm.
All these factors combined will determine how much you will have to pay back to the mortgage lender per month, as well as the total repayable amount. It will also impact on when you can capitalise on your investment if you are planning to sell the property at a later stage.
Mortgage lenders often include other incentives such as “payment holidays” and credit facilities, which may or may not be important to you depending on your overall financial status. Payment holidays, which often last a couple of months, can be used as a welcome break in the repayment plan when you need to use the cash for more urgent commitments.
Making sure that you are protected if you are unable to meet the mortgage repayments for any reason is also advisable. Losing your job, being injured and disabled, and suffering from a sudden and critical illness, could all render you unfit for work, which could negatively affect your income.
Many mortgage lenders in this region will actually insist that you take out life insurance as part of the mortgage deal and some will also require total permanent disability cover. Critical Illness cover and income protection are other areas of personal insurance that you should consider to protect your life style and mortgage payments.
Meeting with an independent financial adviser is a prudent move, as clear communication between you, the seller, and the mortgage provider is essential for a successful purchase.
Finally, it’s worth remembering that banks and finance houses are increasingly examining individual’s financial histories, income and future prospects as part of their mortgage criteria. So be prepared to show that you are also a good investment.
William Iain McIntyre, is a chartered financial planner at Nexus.