A small house placed on top of a pile of coins

Equity release and mortgage buyout in the UAE

Discover two attractive refinancing options in the UAE: equity release and mortgage buyout loans.

If you’re a property owner in the UAE, you should be familiar with mortgage refinancing and the potential options available to you. Two of the most popular types of mortgage refinancing loans are equity release and mortgage buyout. Like any sort of refinancing, these loans can help you take advantage of lower interest rates, keep a fixed-rate mortgage, change the mortgage term, and get ready cash to cover other expenses. Let’s dive in to learn about these two types: equity release and mortgage buyout loans.

What is equity release?

An equity release loan is also known as a loan against property in the UAE. This type of loan allows you to borrow a large amount of money by using your property as collateral. You take advantage of the home equity that you’ve accumulated or the proportion of the property that you own. For example, having 100% home equity means you have fully paid off your mortgage loan and have possession of the property’s title deed. Through an equity release loan, you can release some of the equity that you’ve built up while still owning the property instead of waiting until you sell to benefit from the property’s value. 

How exactly does it work? The lender typically gives you a lump sum of money determined by the property value and your financial situation. You then make monthly payments plus interest to pay back the loan over a set period of time, usually 5-25 years. If you fail to make the payments, the lender is able to confiscate your property. It’s essentially like taking out a personal loan that you can use to finance pretty much anything. An equity release loan can help you fund your dream lifestyle in Dubai!

Benefits of equity release loans

Since the loan is secured by your property, the main advantage is that lenders typically offer lower rates than they would for personal loans. People use the money for a variety of ventures, including to pay off credit card debt, buy an investment property, refurbish and update the property, pay for their children’s or grandchildren’s education, or for other business investments. Some UAE banks have restrictions on what you can use the money for, so make sure you check beforehand. 

Having a lump sum of money can be especially helpful if you’re looking to buy another property in the UAE since the down payment requirement is higher than it is for first property purchases. The down payment for a subsequent property is anywhere from 35-50% depending on if you’re a national, resident expat, or non-resident. Or, if you exceed the age limit requirements and are ineligible for a new mortgage, an equity release loan could be an alternative way to finance your purchase.

It’s also a popular option because the money released is tax-free. You can take full advantage of the released equity without having to pay part of it toward taxes. 

Equity release can give you more flexibility and financial freedom, allowing you to allocate your money to get the highest return on investment possible.

A man's wrists being released from handcuffs in front of a hopeful blue sky.

Who is eligible? 

You can take out an equity release loan in the UAE whether or not you’re currently paying back a mortgage loan on the property. 

Some investors in the UAE buy a property in cash, owning the property outright from the beginning. These homeowners can take out an equity release loan, which will place a mortgage on the property and release a certain percentage of the property value.

Other investors take out a mortgage loan to finance their property purchase. In this case, they may still be in the process of paying back their loan. It’s still possible for these homeowners to remortgage with an equity release loan. People often take advantage of this opportunity when the value of their property significantly increases due to market conditions. When they take out an equity release loan, their mortgage is restructured so they get a lump sum and continue to make a monthly payment. This monthly payment goes towards their initial mortgage and their equity release loan. 

The total loan amount is typically restricted to a maximum of 85% of the current property value, but there are other factors that influence the amount. Each bank has its own conditions regarding equity release loans and may often limit the maximum loan amount for resident expats from 60-80% of the current value. As a non-resident, you may face even stricter conditions such as a borrowing limit of 50% of the property value. The lender will look at your credit score, source of income, and current liabilities when determining how much money you can receive. As long as your credit score is good and your source of income is stable (whether you are a retiree, employee, or self-employed), you have a good chance of being approved for an equity release loan. Remember, you don’t have to take out the maximum loan amount just because you qualify. 

In specific cases, such as with a lifetime mortgage, you may not have to make monthly payments toward your equity loan. Instead, the lender will be entitled to a certain amount of the profits from selling the property later. The amount of the sale price they take depends on the amount that was borrowed and the accrued interest. It’s important to note that if you aren’t making monthly payments on a lifetime mortgage, then the interest can easily add up over time. You’ll also probably want to choose an equity guarantee with no negative which will ensure that the amount of money owed is never greater than the value of the property when it's sold.

What is a mortgage buyout? 

A mortgage buyout is a pretty straightforward type of refinancing. It’s for those with a current mortgage loan who want to switch to a different lender to take advantage of better rates, terms, and/or conditions. A mortgage buyout settles your debt from the first bank and replaces it with a new loan from a different bank. 

It’s often possible to combine a mortgage buyout with an equity release loan if the value of your property has considerably increased. By doing this, you can benefit from a better interest rate and terms while also getting a lump sum of cash. This can be a win-win in the short term and the long term if you carefully consider your finances and market conditions.

How can we help?

Now that you have a better understanding of equity release and mortgage buyout loans in the UAE, you may be interested in going forward with a mortgage refinance. Our mortgage professionals at Kredium can help you search for a refinancing option including both equity release and mortgage buyout loans. You can also search our portfolio of thousands of properties in Dubai to find your next investment property. 

Whether you’re a UAE national, resident expat, or non-resident we have experience helping borrowers in all sorts of situations. Check out our mortgage calculator to estimate your monthly payments under various loan conditions. Or contact us and sign-up to receive personalized loan offers and find the best refinancing option.

Photo credits: