In today's dynamic property and financial world, homeowners often need additional funds for various purposes, such as renovating the property, upgrading the furniture or extending the home. These financial needs can be met through a convenient and cost-effective solution known as topping up a property loan. Below we explain the benefits, eligibility criteria, interest rates and key considerations when applying for a top-up loan in the UAE.
What is a top-up loan?
A top-up loan is an additional financing option offered by banks in the UAE to an existing home loan. Unlike personal loans, this option carries minimal interest rates and extends the term of the borrower's regular mortgage loan.
Let's assume you have a loan of AED 4 million (approx. €1 million) with a term of 15 years for a Property in Dubai and a balance of AED 2 million (approx. €500,000) after a few years. An increase in the mortgage loan enables you to obtain additional funds, e.g. for renovation work, without having to resort to lower-interest personal loans. In an emergency, however, you can also take out a loan against a property. This is the difference between a home loan and a property loan.
Advantages of a top-up loan
A top-up loan is a loan amount that borrowers can utilise in addition to their existing home loan. This type of loan is usually offered by banks and financial institutions to customers who already have a property loan and a good repayment record.
The benefits of a top-up loan in the UAE include
Lower interest rates
Home loan top-ups usually come with lower interest rates than personal loans or other forms of unsecured loans. This is because the top-up is collateralised by the property, which reduces the risk for the lender.
Simple authorisation
Increasing a home loan is often quicker and less complicated than applying for a new loan. As the borrower is already in contact with the lender and has proven their ability to repay, the approval process can be accelerated.
Flexible utilisation
Borrowers can use the top-up amount for various purposes, such as home renovations, educational expenses, medical costs, debt consolidation or other financial needs. This flexibility makes the loan a versatile financial instrument.
Extension of the credit period
The repayment period for an increased home loan is usually adjusted to the remaining term of the existing home loan. This can lead to lower monthly instalments compared to other loans with a shorter term.
Comfort
As the top-up is an extension of the existing home loan, borrowers do not have to apply for a new loan with separate documents. This contributes to the convenience of taking out a loan.
No restriction on use
Unlike some earmarked loans, topping up a home loan is not subject to any restrictions regarding the use of the funds. Borrowers can use the funds flexibly for different financial needs.
Consolidation of liabilities
Borrowers can use a home loan to consolidate high-interest debts such as credit card balances or personal loans. This can result in cost savings by consolidating multiple high-interest debts into a single, lower-interest loan.
Despite these benefits, borrowers should carefully consider their financial situation and the terms of the top-up loan before taking it out. It is important to consider factors such as interest rates, fees and the overall impact on long-term financial health. Seeking advice from a financial advisor can help make informed decisions based on individual circumstances.
Criteria for a top-up loan in the UAE
There are different types of property loans in Dubai that are tailored to your needs. However, the requirements for taking out a top-up loan in the UAE are generally identical to those for a regular property loan.
The most important requirements are
Basic criteria for authorisation
- Active credit relationship: You should already have an active property loan with the same bank or financial institution.
Financial criteria
- Minimum monthly salary: AED 5,000 for licensed companies and AED 10,000 for non-licensed companies.
Employment details
- Required authorisation of the company: It is not necessary to be employed by an authorised company to obtain a loan.
- Duration of employment: You should be a "confirmed" employee or have been employed by your current company for at least 6 months.
General requirements
The general requirements for applying for an additional loan in the UAE are:
- Citizenship and residence: You must be a citizen of the UAE or a resident of the UAE.
- Age: You must be between 21 and 65 years old.
- Minimum monthly income: The monthly income must be at least AED 7,500.
These eligibility criteria may vary slightly from bank to bank. It is therefore advisable to enquire with your bank in Dubai about the exact conditions. If you fulfil these criteria, your chances of successfully applying for a home loan increase and you will receive the additional funds you need for your home building plans.
How to apply for a property loan top-up in the UAE?
Applying for a home loan top-up is a straightforward process with several options:
- Online application: Visit the official website of your bank or financial institution to submit a quick and user-friendly online application.
- Offline application: Contact the nearest branch of the bank where you have your existing loan. Although this method is simple, it can take more time and effort.
- Third-party platforms: Find out about platforms that offer competitive interest rates and efficient disbursement.
It is important that you know all the rules and regulations for property financing in the UAE before you apply.
Interest rates for property loans in the UAE
Before we get into the details, let's take a look at the current interest rates offered by leading banks in Dubai for property loans:
- HSBC property loan: 7,24%
- Emirates NBD property loan: 2,55%
- Mashreq property loan: 3.99% for AED 100,000
Determine upper limits for additional loans
For effective financial planning, it is important to know up to what amount you can take out a top-up loan. Below you will find the most important factors that influence the upper limits for top-up loans:
- Salary-related upper limits: The amount of your top-up loan is linked to your salary, so you can potentially borrow up to 20 times your monthly income.
- Maximum loan amount for expats: Expats can take out a maximum loan amount of AED 1,000,000 via the Top-Up Loan.
- Debt to income ratio: To ensure financial stability, the loan instalment together with the total monthly obligations must not exceed 50 % of the salary.
- Performance-related increases: Salary increases or additional benefits from your employer, such as the provision of accommodation, can increase your loan entitlement and allow you to borrow higher amounts.
- Flexible loan term: You have the option of choosing a loan term that suits your financial situation, with a maximum repayment period of up to 48 months.
If you adhere to these parameters and take into account possible increases due to salary rises, you can maximise the benefits of a top-up loan. It is important that you discuss these details with your bank so that you have a clear picture of your specific eligibility and loan conditions.
Important considerations when increasing a property loan in the UAE
Before you decide to increase your property loan, you should consider the following important factors:
- Comparison of interest rates: Find out about the interest rates of your bank and other banks and compare them with each other. If the interest rates for a personal loan are lower, it may be more favourable to opt for a personal loan.
- Refinancing options: Enquire about refinancing options with banks that offer lower interest rates and potentially save a significant amount of interest.
- Top-up limits: Find out about the maximum top-up limit and the associated interest rates. Some banks retain the original interest rates, while others may charge higher interest rates.
- Flexibility for early repayment: Check whether early repayment is possible without additional fees. Find out more about hidden costs when buying property in Dubai.
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