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Drowning in debt
No skipping on mortgage repayments
If you fall back on your mortgage repayments you face the prospect of losing your home through a foreclosure - or forced sale process, as Owen Belman of Standard Chartered Bank explains.
"A foreclosure process is the standard practise by banks worldwide.
"A foreclosure is where a customer is unable to service their mortgage debt and at that point in time the bank has the contractual right to have the house sold and the proceeds then go towards paying off the principle on that loan.
"Anything beyond that would go towards the customer."
The key to avoiding such a situation is to take a mortgage for which, like any other loan, you can afford the monthly payments.
Generally in Dubai home finance providers will borrow up to 90% of the value of a property and interest rates range from around 7.25% to 9%.
It is usually possible to negotiate lower interest rates by taking a mortgage with a lower loan to value ratio.
Mehra emphasises that customers are generally less likely to fall back on mortgage repayment, the larger the deposit they pay, and consequently the lower the mortgage they take.
"There are situations where mortgage providers offer 100% financing but I would not recommend taking 100% finance.
"The higher the deposit the lower the mortgage repayments will be and the less interest you will pay.
"Banks are in the business of managing risk and the higher the risk level of a customer the more interest they will be charged.
"Those that put down a deposit show a commitment and the ability to save so they are considered lower risk."
When it comes to funding the deposit Mehra strongly recommends customers against taking out a loan for this purpose as this could lead customers into a difficult financial situation.
"We have often seen cases in the industry where customers will take a personal loan to put a deposit down.
"I would strongly urge customers not to do this. Because then you have a long term loan with repayments of X and a shorter term loan with repayments of Y and the repayments on the shorter loan will be much higher.
"The combined repayments would potentially put that customer into financial difficulties and really stretch their financial difficulties."
• Do read the small print.
• Do be aware of your monthly ingoings and expenses.
• Do pay off your credit card bills in full every month.
• Do talk to your bank if you can't keep up your loan repayments.
• Do always check what the monthly installments will be before taking a loan.
• Don't spend more than you earn.
• Don't own more than two credit cards.
• Don't take a loan for daily expenses.
• Don't use a loan to pay for a deposit on a home.
• Don't use a credit card to pay for expensive items such as a car.
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Comments 1-1 of 1
Posted by Still Safe on 16 December 2007 at 21:41 UAE time
Don't: Immediately bring your family over to Dubai, look to initially share accommodation unless it is paid by employer.
Do: Save as much as possible during your probationary period.
Do: Always take 'free for life' credit cards. Ask the bank to set a limit equivalent to your current salary.
Do: Ensure your security cheque has an amount mentioned on it and NO blank cheques.
And irrespective of what the government says expect to be paid 20% extra every year - this should match the rate of inflation and cost of living expenses including rent, school fees, etc.