Even though a maximum tenure i.e repayment period is set while approving a loan, loan holders are given freedom to clear the debt beforehand. But there is an early settlement fee charged by the banks if the loan is cleared before the end of the tenure. The early settlement fee charged varies with different types of loans. On a mortgage loan in UAE, the early settlement fees range from 0% – 3%.
Check: What you need to know before applying for a Home loan in UAE
According to the latest update from the Central Bank in UAE, banks or financial institutions should charge 1% of the outstanding loan amount or AED 10,000(whichever is less) as early settlement fees on the mortgage loans.
Previously the early settlement fee on a home mortgage in the UAE was 1%. Later in June 2018, it was increased to 3% on some mortgage products. Now the central bank has reverted it to 1% as this is being expensive for the mortgage holders. Having a higher early settlement fee will trap the mortgage holder and make it hard to clear the loan beforehand or switch to another bank with higher benefits.
Banking customers who already cleared their mortgage by paying an early settlement fee of more than 1% of the outstanding loan amount or AED 10,000, can claim a refund from their banks. The additional amount paid will be reimbursed in 30 days of this central bank announcement.
Earlier this year(2019), there was a drop in the interest rates charged on a mortgage loan in UAE. The drop in the mortgage interest rates will encourage individuals to invest in real estate in UAE and this current reduction in the early settlement fee will help them in clearing their mortgage early and supports them to save money.
Along with the reduction in the early settlement fees on the mortgage loan, the maximum age criterion is also modified. Previously, the mortgage applicant must be below 70 years at the time of repayment. Now the maximum age criterion will be chosen by the lender itself.