Desperate for some quick cash? How can I benefit from “cash-out refinancing” of my own home


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Refinancing can help consolidate or pay off existing debt or lock in lower fixed profit
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Dubai: If you want to borrow against the equity in your home, you have several options. One choice is cash refinancing – this is when you pay off the original loan on your home, take out a new one, and get cash for some of the equity you have in the home.

How does cash-out refinancing work?

Refinancing a mortgage means replacing your existing loan with a new one that includes a new interest rate and a new term.

Withdrawal refinance is a type of mortgage refinance that allows you to withdraw a lump sum of money from the equity in your home. The part of the equity that you withdraw is then added to the principal of your new mortgage.

The interest rate you pay is applied to your new mortgage and can be fixed or adjustable depending on the type of loan you choose.

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Remember to calculate the risks associated with mortgage-backed securities
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How much equity is needed for cash-out refinancing?

The amount you can withdraw depends on the amount of equity in your home. In most cases, you will need to keep at least 20% of the value of the new loan in equity after refinancing. The appraised value of your home is a key factor in determining how much money you can get.

How much can you borrow for a home loan in the United Arab Emirates?

Expats taking out a home loan will need a down payment of at least 25% if they buy a property worth up to 5 million dirhams. More expensive homes will require a deposit of at least 35 percent.

If you are looking to invest in a property and rent it out, you will need a rental mortgage, which will require a much higher down payment of around 40-50%.

Borrowing is capped in various ways. The amount you borrow (including interest) cannot exceed your total expected income for the next seven years.

In Dubai, mortgage payments are capped at 50% of your monthly income; a generous figure compared to the 30% or 35% ceilings used in some European countries.

When applying for a mortgage, you may find that banks require you to have higher income than a local applicant, as some lenders view expats as a riskier proposition.

When applying for a mortgage, you may find that banks require you to have higher income than a local applicant, as some lenders view expats as a riskier proposition.

Is cash-out refinancing worth it?

There are many advantages to a cash-out refinance. However, it’s important to balance the expense of replacing your mortgage and paying closing costs with the benefits of how you intend to use the money.

Before taking advantage of the equity in your home, determine if the plans you have in mind are worth the risk. For this, let’s understand what to consider before opting for a cash-out refinance.

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There are many ways to pay off your mortgage early, but you need to understand the possible pitfalls before you take any further action.
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Key considerations for cash-out refinancing

If you have equity in your home, refinancing with cash may be a good idea. However, there are also reasons to avoid it.

Reason for opting for cash-out refinancing: Availability of lump sum funds

With cash-out refinancing, you can use the money for home improvements

Can I use the money for something other than home improvement?

In accordance with the current guidelines of the Central Bank of the UAE, funds secured by an equity release can only be used for the renovation of the same property or used to buy another property in the UAE. However, due to their current financial situation, most banks have constraints in releasing the equity of current owners.

The Central Bank had issued guidelines on equity release transactions in the fourth quarter of 2019, which restrict the use of these funds for general debt consolidation, such as settling your car loan, personal loan, or debt. your credit card contributions. Instead, you are encouraged to use this money only to renovate or improve your existing home or buy a new property.

Customers should be aware that the interest rates on a capital release are higher than those on a new mortgage or buyout transaction.

Reason for opting for cash-out refinancing: Interest rate

Your new loan may have a lower interest rate, depending on when you took out your current mortgage, current interest rates, and your credit history.

With cash-out refinancing, your rate will also generally be lower than credit card interest rates or personal loan rates.

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As with any mortgage or refinance, you will pay the closing costs of a refinance in cash, which could include appraisal and credit report fees.

Reason not to opt for cash-out refinancing: Closing costs

As with any mortgage or refinance, you will pay the closing costs of a refinance in cash, which could include appraisal and credit report fees.

How much are the average mortgage fees in the United Arab Emirates?

When you take out a mortgage loan in UAE, you will need to pay a fee of 0.25% of the balance to register the loan. Your lender may also charge you an appraisal fee and ask you to pay for mortgage protection insurance.

Building insurance is compulsory when taking out a mortgage in the United Arab Emirates. It is up to you to decide if you purchase content insurance. Insurance policies in UAE can be very affordable and you can purchase the buildings and contents separately or as a package.

The amount you will pay depends on the value of your home and your possessions. Typically, your annual premium can be around 0.1% of the combined value and contents of the property.

Reason for not opting for cash-out refinancing: Repayment period

With withdrawal refinancing, you replace your existing loan with a new one for a larger amount, which could lengthen the repayment period and the amount of interest you pay over time.

Reason not to opt for cash-out refinancing: Collateral

As with any home equity option, a withdrawal refinance uses your home as collateral, so defaulting on your loan could put you at risk of foreclosure.

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More and more banks in the UAE are offering deals on their existing mortgages, where they reduce the interest rate charged for a period of one year, passing the recent lower interest rates on to customers. The image is used for illustration purposes only.
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Let’s compare the different financing options you have when borrowing against your home

There are other ways to borrow against the equity in your home. Depending on your situation, a home equity loan or line of credit may be more useful than refinancing with cash. Here’s how the different options stack up.

• Replace the mortgage? Yes.

• Interest rate: Available through a fixed rate mortgage or a variable rate mortgage.

• Closing cost: Similar to your original mortgage.

• Payment : Lump sum when you close your refinance loan.

(A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. The loan amount is determined by the value of the property, and the value of the property is determined by an appraiser. of the credit institution.)

• Replace the mortgage? No

• Interest rate: Usually fixed, but usually has a higher interest rate than a line of credit for the same amount.

• Closing cost: Similar in percentage to what you paid on your original mortgage.

• Payment : Lump sum at the closing of your loan.

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Refinancing can be a tool to shorten the loan term or reduce monthly payments
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Home equity line of credit

(A home equity line of credit is a loan in which the lender agrees to lend a maximum amount within an agreed time frame, with the collateral being the borrower’s equity in their home)

• Replace the mortgage? No.

• Interest rate: Usually has an interest rate which is variable and changes in conjunction with an index.

• Closing cost: Usually has no (or relatively little) closing costs.

• Payment : You withdraw from your available line of credit as needed during your drawdown period, typically 10 years.

Thinking of refinancing your mortgage in the United Arab Emirates?

The UAE mortgage market is very competitive, with banks striving to offer fixed terms at reduced prices on their home loans. This is good news for homeowners looking to switch offers, as the best deals tend to be available to people with existing mortgages.

If you are looking to change your transaction, contact your current bank first. Some lenders will consider restructuring your loan at a reduced rate for a fixed term. However, while some banks offer a free re-mortgage, most will charge you for the change.

The days of 3% redemption fees are over, because the rules introduced in December 2015 set the maximum fees at 1% of the balance (up to 10,000 Dh).

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