Introduction to the Home Loan Interest Rates
To own a house that one can call their own is a dream shared by almost everyone. With cities like Dubai and Abu Dhabi becoming more and more popular as business hubs in the UAE, people from all over the world have started moving there and one of the main things that some of them have on their mind is to be able to buy a house. Buying a house is something that is easier said than done. The amounts required are high and the loans last for a long time and that is why you need to be careful when it comes to taking a home loan.
There are many factors that need to be taken into consideration when taking a home loan in the UAE. The main factor, factor, however is the interest rate. Home loans are easily available from various banks across the UAE. The common terms are that the banks are willing to fund up to 80% or more of the cost of the property and you pay the balance. The loan can be taken for as long as 20 to 25 years and paid back with an interest.
The interest rate that is applicable on these loans depends on the bank that offers that loan. It can range from 2.5% per annum to 5% per annum. A look at some of the banks offering home loans in UAE will show you that HSBC offers an interest rate of 3.24% per annum. This is a rate that is applied to the reducing balance and is available under certain conations. Banks like Emirates NBD offer interest rates of around 4.25% per annum while ADCB offers an interest rate of 3.99% per annum.
With the conventional home loan, both UAE residents and expatriates, can expect to pay an interest rate between 2.5% per annum and 5% per annum. The standard monthly instalment has components of both the amount borrowed and the interest due on it, however, some banks offer an interest only payback option in which you just have to pay the interest for the first few years of the loan. This helps reduce the instalment amount that is due every month and can ease the financial pressure on the borrower.
The conventional home loan interest rate are of two main types. The first is the fixed rate of interest and the other is the variable rate. With the fixed rate the interest charged on the loan remains fixed for the entire duration of the loan but with the variable rate it does not. The variable rate is prone to increase and decrease as per the market conditions. This means that customers can end up paying higher interest rates than they anticipated or even lower. Some banks offer interest rates that are a combination of the two. The first few years of the loan come with a fixed rate of interest while the remained carry a variable rate of interest. The advantage of this system is that once the rates change over to the variable interest rate, the monthly payments can reduce if the interest rates come down.
Another type of home loan available is the buyout loan. This loan is basically the same as a balance transfer on a credit card. Sometimes it so happens that the interest rates offered by the current bank become too high for customers to pay, and they are forced to refinance their home loan. This is when the buyout loan comes in. A typical feature of this loan is that it tends to offer slightly lesser interest rates than the regular home loan.
There are also home loan provided under the Sharia rules of Islamic banking. Under these rules no interest rate is charged. Instead of an interest rate, a profit rate is charged. In such cases, the banks procure the property on behalf of the customer and rent or lease it out to them at a fixed monthly payment for a certain period of time. Once the payments are over, the property is turned over to the customers.
The golden rule of any home loan is that you should not jump at the first option that come in front of you. It is always best to shop around and see what other banks are offering and that is where BankBazaar can help. Because of the way the information is gathered and presented on the site, we are able to make it very easy for you to be able to compare the features and interest rates of various home loans and choose the one that suits you the most.