Gulf News, July 3, 2010
04 July 2010
Gulf News: "Working Out Equity on a Dubai Home"
Q. I am planning to take the equity out of my Dubai property, however, I am unclear as to the formula for working out the amount of equity there is. I would also like to know the various ways I can go about releasing this equity and the pros and cons of each.
Many people who own property take the opportunity to use the equity they have built up in it to pay for something that requires a sum of cash. Releasing the equity in your home can be done in a number of different ways, however, the first thing you will want to do is to work out exactly how much equity you have.
The simple calculation requires you to find out the cash value of your home on the open market, from which you must subtract the outstanding balance on your mortgage. You can determine the current value of your property by asking a real estate agent to carry out an evaluation. To get an accurate assessment, however, you may want to ask three agents for their valuations from which you can take the average figure.
Releasing this equity can be as simple as selling the property to taking out a home loan, but remember whatever you choose will incur extra costs, making it wise at this point to undergo a full reassessment of your finances with an independent financial advisor, who will be able to council you on the best approach to you financial goals and security going forward.
As mentioned above there are a number of ways you can access the equity tied up in your property. The first is to sell the property which some people favour because it removes the need for refinancing, and opens up the possibility of generating more equity, than predicted, on the open market. However, on the flip-side you could end up with less equity than expected and be without a home.
In view of this many people choose to remortgage, whether they need to release the full equity or just part of it, and there are a myriad of home refinancing deals out there to choose from. However, whichever lender you choose to go with they will want to make their own assessment of the market value of your property. They will also require documentation from you proving that you are able to pay the new higher mortgage payments. This normally involves providing evidence about your monthly income, annual salary and details of your outgoings, such as loans and credit card payments.
The lender will then offer you a new mortgage deal based on the current market value of the property and current interest rates. Remortgages, as with mortgages, normally run for up to 25 years, and once in place the agreed equity will be released into your bank account.
If you do not wish to remortgage then you could opt for a home equity loan. Home equity loans are most useful when you need a specific amount of money for a project or investment. Such loans involve borrowing against the equity in your house and come in a fixed amount that is repayable over a set period of time. The payment schedule is usually designed around equal payments that will eventually pay off the entire loan. Your current mortgage lender or bank will usually be able to assist you with this.
It is important to remember that all mortgages and loans usually require insurance against default, with both life insurance and critical illness cover pre-requisites for many mortgage lenders. Your independent financial advisor will be able to organise the appropriate cover for you.
Gurnos Stonuary, Business Services Director, Nexus Insurance Brokers LLC.