Taking out a mortgage is one of the biggest financial decisions you’ll make, so it’s important to review your mortgage costs regularly and take action to reduce them where you can. You could save hundreds of thousands of Dirhams over the term of your mortgage.
I regularly advise my clients on remortgaging to get better rates and reduce costs. It’s a simple process, and with interest rates on the rise and many banks offering competitive mortgage products to attract new customers, now is a perfect time to review your mortgage and look at switching to get a better deal.
What is a remortgage?
Remortgaging is when you replace an existing mortgage with a new one, either with your current lender or with a new one who will ‘buy out’ your existing debt.
When should you remortgage?
If you’re on a fixed rate mortgage and still within your fixed period, I advise reviewing your mortgage shortly before your fixed period is due to end. About two months gives you time to look at options. If you’re on a variable rate mortgage, reviewing your mortgage once a year should ensure you remain on a good deal.
How do you know if remortgaging is worth it?
To determine whether it’s worth remortgaging, you need to work out whether you can recoup the costs of remortgaging, and start to save money, within a reasonable period of time. If you’re moving onto a fixed rate mortgage, you should be looking to recoup costs well within the fixed rate period. This is because you’ll revert onto a higher rate once your fixed period ends and may need to remortgage again.
There are three key factors that determine whether or not it’s worth remortgaging:
- the headline interest rate of your existing and new mortgage
- the costs of remortgaging
- any exit penalties you may need to pay.
A good mortgage advisor, like those at Mortgage Finder, will be able to run a cost analysis for you and advise on whether it makes financial sense for you to remortgage.
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Step 1. Compare interest rates
If you’re on a variable rate mortgage, or on a fixed mortgage’s reversion rate, it’s likely you’ll be able to find a better deal.
It’s always worth going to the bank, or lender, you have your mortgage with and asking them what they’ll offer to keep you as their customer. You can then use this to compare against other mortgages in the market.
Step 2. Work out your remortgaging costs
Remortgaging is not cost free. You’ll need to pay several fees associated with taking out a new mortgage, so make sure you factor these in when you assess whether it’s worth remortgaging:
|Mortgage de-registration fee||AED 1,590|
|Property valuation fee||AED 2,500 – 3,000|
|Mortgage re-registration||0.25% of the mortgage amount, plus AED 290|
|Mortgage registration trustee fee||AED 2,000 for properties below 500,000; AED 4,000 for properties above 500,000 (+ 5% VAT)|
Step 3. Know what your exit penalties are
It’s likely that your bank will charge you a penalty for exiting your mortgage early. If you remortgage, your new bank will take on these costs by adding them to your mortgage (so you’ll need to consider the penalties plus the interest).
In 2018, the UAE Central Bank decreed that lenders can charge up to 3% (uncapped) to clients who exit their mortgage early. While the bank has to be able to prove financial loss to charge the full 3%, exit penalties can vary between different banks and mortgages. So make sure you know what the exit penalty policy on your mortgage is.
Remortgaging isn’t a hassle and many can save tens, or hundreds, or even thousands of dirhams – don’t be put off!
While remortgaging can feel like a hassle, for many of my clients, the savings are well worth it. So, once you take out a mortgage, make sure you review it regularly.
Enlisting the help of an independent mortgage advisor is the easiest way to remortgage. They’ll analyse your potential costs and savings, and find the best products in the market for you. Don’t delay – you could be losing thousands!
By Candice Reed CeMap, Senior Mortgage Advisor, Mortgage Finder