Home Owners can reduce their EMI by refinancing

Reduce your EMI by refinancing

You could consider refinancing to reduce your debt with a lower interest rate or to increase cash outflow to meet high interest loans.

With a robust and promising UAE Real estate market, It would be worthwhile to retain a property albeit at a lower cost. Rising oil prices, an influx of residents from Arab states with political issues and strong performances in key industry sectors have all contributed to an improved UAE real estate market. Experts also suggest an increase in prices in early 2013 with the recovery of global economy. Even with stable prices, homeowners can benefit with the falling interest rates for Home Loans.

The mortgage market is currently experiencing probably the lowest finance rates in the last 8 years. Interest rate on Home Loans is hovering around 4% p.a. down almost 50% from 2006 levels of 8% p.a.

A shift to a low rate home loan would be beneficial to reduce debt and increase cash outflow for investment or repayment of an Unsecured Loan with much higher interest like a Credit Card or a Personal Loan. This kind of loan is called a balance transfer loan. It is also called a Refinance/Buy Out Loan by the Bank to which the customer shifts.
Many customers have benefited from a balance transfer to a cheaper home loan.
It works like this: A home owner got a 75% mortgage on an apartment purchased in 2006 for 2 million. For the loan amount of 1.5 million @ 8% p.a. for 20 years he would be paying an EMI close to AED 12,500. The EMI on the same loan can reduce by AED2,000 by switching to a 4.5% interest rate loan. That’s a saving of AED 24,000 in a year or 16X 24,000 = 336,000 AED, over the next 14 years. However some part of the saving would have to be paid as fee to banks.
The cost of this saving on account of lower interest rate can be divided into 2 parts:
1.    Balance Transfer Fee to the existing Bank
2.    Valuation Fee & Processing Fee to the new Bank
Balance Transfer Fee varies between 0-3% depending on loan agreement terms and conditions.  Valuation fee for a buyout loan can range between 0AED to 3,000 AED. Processing fee for a buy out loan ranges between 0-1% of the loan amount.


Needless to point out that a balance transfer/ refinance makes most sense when the new Bank not only offers a substantially low interest rate and charges no processing/ valuation fee. There is a fantastic offer from ADIB Home Finance @ 4.49% p.a. where there is 0 Processing fee and 0 valuation fee. That could mean a straight saving of 10000+ 1500 on account of processing fee and valuation fee on a 1 million dirham loan. Other UAE Banks offering a Home loan at low interest rates include, United Arab Bank, Commercial Bank International & Emirates NBD.


Another way to save the fee and still take advantage of the low interest rates is to request your existing Bank for a revaluation on the existing loan. This is also a form of refinancing and Banks can charge 1% of Loan amount for the same. However not all Banks in UAE are following this practice currently.


Find the best Home Loan that suits your need in The Home Loans section. You can use Loan Comparison Calculator and Early Repayment Benefit Calculator to find out how much you can potentially save by switching to a cheaper loan.
Use the low interest rates prevailing in the market to your advantage and save real money. For any queries on Home Loans write to us at expert@moneycamel.com

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