UAE Central Bank reduces early settlement fee for mortgages

As per the latest announcement from the government, there is good news for homeowners who want to settle outstanding home loans in the UAE as the early settlement fees for mortgages have now been reduced. Owners who want to opt for early settlement of their mortgage in Dubai will now only need to pay 1% of the remaining balance or AED 10,000, whichever is less.

These reduced charges for paying off mortgages early in the UAE is a welcome change for current homeowners paying off mortgages and those interested in applying for new home loans. 

All about the New Mortgage Settlement Laws in the UAE

If you are keen to understand the new mortgage laws in Dubai and the rest of the UAE for early home loan settlements, we have you covered. Take a look at the main aspects of the new UAE home loan laws introduced in October 2019. 

The Board of Directors of the Central Bank issued this new decree called Decision No. 96/By Circulation/2019 amending Appendix 2 of Regulation No. 29/2011. 

This new reduced settlement fee law in the UAE applies to the early closure of home loans in Dubai and any other mortgage products offered to individual customers. Bear in mind that the rule does not apply to corporate clients of UAE banks. 

Before the new decree was passed, early settlement fees for Dubai home loans were charged at 3%, a rate which was operational since June 2018. With this new law, it has become easier for borrowers who want to exit their mortgage early and refinance with better rates. 

The 3% cap for early settlement fees on mortgages in the UAE was introduced last year along with several other overhauls announced by the Central Bank to curb excessive lending. While there were certainly positive outcomes to this rule, it also made it more expensive for buyers and investors. They could not opt for an early mortgage payoff even when attractive rates were available, which meant they were taking longer to pay off home loans. This lower fee will help borrowers to take advantage of competitive mortgage rates and re-finance with better lenders. 

"Early settlement or partial settlement fee for applying to home loans has been reverted to a maximum one per cent of the outstanding balance or Dh10,000, whichever is less. Banks and finance companies that arbitrarily changed the stated terms of the fees in existing customer agreements are required to respect the original terms of the agreement and refund all overcharges for all customers based on their original fee within 30 days of this notice," read the circular.

If you are keen to take advantage of these new early settlement laws in the UAE, take a detailed look at the types of mortgages available. You can read more about the benefits of flat vs. reduced interest rates for further clarity on the type of interest for your mortgage choice.

Age Cap Removed by Central Bank 

Until the announcement was made, banks in the UAE could only issue mortgages to loan holders who would be under 70 before their last repayment was due. The Central Bank lifted this rule along with the early settlement fees for home loans in Dubai. The maximum age restriction can now be set by lending bodies and banks, which creates more opportunities for more mature investors and buyers, who are keen on taking advantage of the 5-year retirement visa in the UAE. 

Both these amendments have been welcomed by the real estate fraternity in the UAE, who believe the reduction in the early settlement of loan fees will create more opportunities for buyers and investors. Let's take a look at some of the thoughts from the real estate industry leaders about the early settlement sees for mortgages in the UAE.

Stuart Roe - Allsopp & Allsopp

Stuart Roe, the Head of Mortgages, shared his thoughts on the announcement of the reduced mortgage exit fees in the UAE announced by Central Bank.

“Buyers can feel more confident knowing that in the future they won’t be faced with high exit fees for selling or otherwise refinancing for a better rate. In my opinion, this will encourage more buyers into the market knowing that they can afford to sell or remortgage in the future. Sentiment in the market will now be much more positive, people will now trust their decision to buy without second-guessing themselves in the future."

Alessia Sheglova - Dacha Real Estate

Alessia Sheglova, the Managing Director of Dacha Real Estate also shared similar sentiments and hoped that this announcement would lead to positive outcomes for the property market in the UAE. 

“I think the new regulation will give buyers and sellers more flexibility with their mortgage products. Buyers will be able to upsize more easily if they wanted to or they could change to more attractive mortgage products. Also as mortgages become more affordable, it could result in more buyers committing to a purchase. It is good to see that the mortgage products are starting to reflect the changing market conditions.”

Bayut’s CEO Haider Ali Khan also welcomed the new law about early settlement fees for mortgages in the UAE and applauded the government for the proactive decisions following His Highness Sheikh Mohammed bin Rashid Al Maktoum's announcements through the Letter of the New Season. 

“There is a clear vision to support the growth of the real estate industry while protecting the interest of all key stakeholders, including buyers, developers and tenants. The reduced cap on early settlement fees comes on the heels of the amendment to the laws for jointly owned properties. Before this, the government also announced the setting up of a Higher Real Estate Planning Committee to balance the supply and demand of properties in the market. These decrees offer a healthy way to regulate the property market while creating ample opportunities to build interest among buyers and investors.  

This new initiative will not only encourage banks to come up with more competitive products, but it will also reassure buyers who now have the option to refinance and obtain a lower interest rate or shorten the term of their mortgage. It creates an easier way to reduce debt and inject more capital into the market by attracting potential homeowners, which is positive for the economy overall.”

Are you excited about the new laws for early settlement fees for mortgages in Dubai? Let us know your thoughts about this reduced settlement fee in the comments section below, and take a look at how you can get a mortgage in Dubai.