What’s the catch?

Last month Amlak offered customers the chance to refinance their home at a profit rate of 6.95%. Property broker Michael Topham gives his verdict on the deal.
What’s the catch?
By Michael Topham
Fri 21 Dec 2007 04:00 AM

If refinancing is something you want or need to do then the deal from Amlak Finance looks pretty good.

Their loans are Sharia compliant; the refinance offer has a profit rate of 6.95% to residents of the UAE and covers up to 90% of the market value of residential property. Their normal processing fee would be 0.75% of the loan, plus AED 6,000 fee for pre-approval, but both of these fees have been waived for the home refinance offer which allows you to save a significant amount of money.

The maximum repayment term is up to 20 years for residents.

For a conventional home loan their profit rate is 8.5% and the fees referred to above apply, so the refinancing deal looks like a very good one on paper.

Be careful with a 90% loan to value loan and if you're doing it to reduce unsecured debt, make sure you actually pay off the unsecured debt with the proceeds of the loan and don't replace it. Cluttons do the valuations for Amlak so talk to them about the basis for their valuations. They are a very reputable company.

I understand that residential home refinancing is relatively new in the region. Perhaps that's not surprising in a country where so many homeowners have owned their property for a relatively short time, compared with more mature property owning countries around the world. In the UK for instance people may have owned and lived in their home for many years, many with quite small mortgages compared to the value of their homes.

Home refinancing is big business around the world and it can represent an opportunity for financial services companies to make money and some unscrupulous financial advisers to sell loans to people who really can't afford them. Or at least they won't be able to if interest rates go up and/or property prices fall. The fact is that the harsh reality of losing one's home is a real possibility if you borrow too much. And if house prices fall then homeowners could face a very uncomfortable scenario.

In the UAE, where the market is new, the lessons of the past from other countries are important, more so where the value of property is less certain and where many homeowners are new so do your research before signing up for this kind of offer.

For further information contact:

• Michael James Topham
• General Manager, Kanoo International Property Broker LLC
• Bespoke International Property Search Consultants
• Mobile No +971 50 473 4782
• Email enquiries@kipb.ae
• Website www.kipb.ae

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