First & Second Year Early Settlement Charges on UAE Mortgages

The general assumption made by many homeowners in the UAE is that having acquired a mortgage, the only thing they would want to do is to pay it off within the shortest time possible. Although early repayment might seem to be quite economical in terms of finances, it is necessary to be aware of the early settlement charges before making such a choice.

Being aware of how these charges work can help borrowers to be aware of their bills and plan their mortgage journey in a better manner.

What Are Early Settlement Charges?

Early settlement charges refer to the charges charged by the banks in situations where a mortgage holder decides to repay his/her mortgage before the agreed loan term expires. This could happen when:

• Selling the property
• Refinancing through a different bank.
• Paying a sum of money in cash.

These charges are there to cover the lost interest income by the banks because of early repayments.

The UAE Investigates How Early Settlement Are Charged.

Early settlement fees in the UAE are controlled and are normally computed as a percentage of the loan balance and must have a limit imposed on them by the lender.

The precise structure can be different based on:

• Bank policy
• Mortgage type
• Remaining loan tenure

It is always important to ensure that borrowers ascertain charges before deciding to make repayments.

Where Early Settlement Charges Are incurred.

The early settlement fees can be imposed when:

• A house is sold earlier than the maturity of the loan.
• A borrower transacts with a different lender.
• The personal funds are used to close the mortgage.

Prior to the full repayment, there could also be conditions or limits to the partial repayment.

When Early Settlement can still be a good Idea.

In spite of the accusations, early settlement can be useful when:

• The interest rates have risen tremendously.
• Refinancing will be a long-term savings.
• Economic situations have become considerably better.

The cost-benefit analysis will assist in showing whether early settlement is economic.

Aspects to be put into consideration before settling early.

Borrowers ought to take into consideration before terminating a mortgage:

• Remaining loan balance
• Applicable settlement fees
• Interest savings over time
• Effect on borrowing capacity in future.

Advice by a professional can assist in determining the value of early settlement in relation to long term financial objectives.

Final Thoughts

Pre-payment of a mortgage is not necessarily a clear-cut choice. Although it can save on long term interest expenses, settlement expenses can affect the total savings when not well planned.

Knowledge of workings of early settlements enables homeowners to make decisive choices and organize their mortgage plan accordingly.