UAE: Experts advise borrowers to save money by refinancing loans-News

Experts recommend that borrowers carefully check the loan agreement to see if there is room for savings. Compared to previous years, the relatively low interest rate system provides an opportunity to reassess loans and may save some additional dirhams each month by refinancing loans.

“Revaluing liabilities is as important as revaluing assets,” said Lakshmana Swamy, co-founder of MyMoneySouq, the UAE financial products market.

“Lending interest rates will continue to change with the market. The value of loans may increase or decrease over time; reassessment one or more times a year not only allows lenders a clear understanding of the debt situation, but also possible to find more Good choice.”

Currently, variable-rate housing loans are hovering around 2%, while the starting interest rate for five-year fixed mortgages is about 2.75%. On the other hand, the interest on personal loans ranges from 5% to 9%, depending on factors such as the applicant’s income source, credit history, age, and employment status.

“This low interest rate environment was not like that a few years ago,” said Vijay Valecha, chief investment officer of Century Finance.

“The UAE’s benchmark interest rate hovered around 2.25-2.5% during 2018, after which the central bank began to cut interest rates in 2019. In 2018, the average mortgage interest rate in the region was approximately 3.75-4.25%. The interest on the loan will be much higher than the current interest.”

Who should explore this option?

In fact, anyone who got a mortgage in 2018 or before.

“If a person took a loan in 2018, when EIBOR was hovering around 3.5%, and considering the current low interest rates, loan refinancing seems to be a viable option. Borrowers need new loans to repay existing debts, and old loans The terms of the agreement were replaced by the updated agreement,” Valecha said.

He added that you must not forget the fines settled in advance.

If it is a personal loan, discuss with your banker or financial planner what savings can be made.

Personal loan contracts are shorter than mortgage loans. Only after considering the advance settlement payment and processing fees of the new loan agreement can refinancing or buyout options be explored.

What are the expected savings?

The interest rate is the main part of the loan. Therefore, obtaining loans at lower interest rates will definitely have a significant impact on savings.

The EIBOR in 2018 is about 3.5% of the loan. If the current 0.5% EIBOR is used for refinancing, it will save the borrower about 80% of interest expenses.

Swamy explained: “If a person has a loan of 1 million dirhams for a period of four years with an interest rate of 5%, by the end of the term, the total interest amount will be about 105,406 dirhams. After one year, the loan amount will be AED 768,389 and a monthly EMI of approximately AED 23,029.”

“Re-evaluate the loan in one year and find a product with a lower interest rate, such as 4%, with a three-year interest rate of Dh48,304. This is clearly 45% lower than the planned overall interest rate initially.”

Having a good credit score will help

Credit scores play an important role for banks in assessing the value of borrowers and key decisions such as interest rates and personal loan eligibility.

“The higher the credit score, the greater the chance of obtaining low-interest loans. During the reassessment period, the timely payment of the credit score and instalments will help negotiate interest rates with the lender. The credit score guarantees the lender timely payment,” Swami Say.

Things to remember

You can call your bank to ask if you can modify the current loan agreement, or if you are exploring options with other financial institutions, be sure to consider the costs involved in obtaining a new agreement.

“Buying out a loan involves the handling fee and early settlement fee of the existing lender. The loan holder must determine how much he can save when paying the handling fee and early settlement fee after obtaining a new loan at a lower interest rate. In addition, when purchasing a loan Under circumstances, make sure that the new interest rate does not rise after the welcome period,” Swami suggested.

Valecha added: “Refinancing initiatives usually save borrowers. However, if it’s a mortgage refinancing, some fees should be considered, such as settlement fees paid to old lenders, property valuation fees, mortgage cancellation registration fees, and Dubai The Land Office (if the property is in Dubai), mortgage registration fees, DLD title fees and any other miscellaneous fees.”

Suniti Ahuja Koli

Suneeti Ahuja-Kohli has been in Dubai long enough to call it her spiritual home. She likes to travel, but plans to settle down on Koh Samui in Thailand and eventually spend her sunset years by the sea. Currently, she often writes articles about personal finance, retirement planning, business news and features, health, and almost all editorial-specified content. Her stay can be followed on Instagram (suneetiahujakohli), Twitter @suneetiahuja, news and opinions, and the rest, she also has a Facebook account.