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.
We regularly advise our clients on remortgaging to get better rates and reduce costs. It’s a relatively simple process, and with recent interest rate cuts many banks are offering competitive mortgage products to attract new customers, making now 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?
There is no set time as to when you should consider a remortgage. Instead, it is worth reviewing your mortgage on a regular basis to make sure you’re still getting a competitive rate from your current lender.
One common misconception is that it is not possible, or that there are specific costs, to remortgage whilst within a fixed rate period. Although this is the case in several other countries, in the UAE, there are no additional or specific fees associated with exiting your mortgage whilst within the fixed rate period . There is, however, a set fee for exiting the mortgage at any point, which is set by the Central Bank of the UAE, regardless of whether this is within the fixed rate period or afterwards. We will cover the fees to exit a mortgage in more depth later.
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 new mortgage, you should be looking to recoup the costs within a couple of years.
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 reversion rate, depending on when you took this mortgage, 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 some 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 + VAT|
|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).
The UAE Central Bank decrees that lenders can charge up to 1% or 10,000 dirhams, whichever is the lower amount, to clients who exit their mortgage early.
Changes to how how life insurance premiums are priced
One final thing to note when considering a remortgage is the cost of your life insurance premiums.
When taking a mortgage in the UAE, there is a requirement to take out a life insurance policy to cover your mortgage should anything happen to you. In 2020, the Insurance Authority introduced changes with regards to how premiums should be priced. This change meant that those who took their mortgage prior to 2020, could potentially save up to 65% on life insurance premiums. This is something to take into account when working out whether it is worth remortgaging, as it could be a further saving for you.
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 our 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!