Reduce Interest Payment on Existing Home Loan Burden in UAE?

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Useful Tips to Decrease Your Interest Burden on Existing Home Loan

Repaying a home loan in the UAE can take up to 40% of the borrower’s monthly income. Loan repayment can indeed prove to be a tedious task given borrowers end up taking 15 to 20 years to repay the entire loan amount. 

One of the foremost ways to make loan repayment more feasible is to reduce the home loan interest rate payable. A step that you can take in this regard is to compare the mortgage loans for their repayment interest rate from different banks in the UAE. 

In addition to this, discussed below are some straightforward and useful tips that can help you decrease the interest rate payable on your home loan in UAE

Prepay Your Home Loan

Your initial monthly instalments are used to cover the interest charged over your overall home loan amount. So when you make regular prepayments in the starting years, you reduce the home loan interest rate significantly. 

Most home loan borrowers tend to prepay certain portion of their home loan debts, although the payment strategy may vary as per the applicant. For instance, a person can decide to make part prepayments half yearly to reduce the overall interest payment burden. 

Prepaying a home loan in the UAE can help you settle your existing home loan in part or full and even save money. To prepay the mortgage loan in the UAE, review the early payment terms and your short- to mid-term financial health to ensure that you are also able to save while prepaying the home loan. So whenever you get incentives, save them up to prepay your home loan in the UAE. 

Opt for a Logical Loan Tenure

Reviewing your financial conditions before deciding the final loan repayment tenure is key to a timely repayment of the loan. You can determine the home loan term using the following to approaches –

  1. When choosing a short home loan term – You would need to pay more EMI amount. Even if reduces the interest rate payable, it can financially strain your monthly budget. 
  2. When choosing a longer term for repaying home loan – You would be paying a convenient monthly instalment with a higher interest rate payable towards the end of the loan tenure.

To reach the middle ground, you should select a loan repayment tenure after calculating your home loan instalment using an EMI calculator to move in the right direction. An EMI calculator is an online tool that computes the instalments you would need to pay to settle your home loan debt. The calculation here is done on the basis of your current income, savings, and more. 

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Choose to Transfer Your Home Loan to Another Bank

A balance transfer is another option to decrease your interest payment burden on your home loan in the UAE. In case you are dissatisfied with the current interest rate charged by your lender, you can transfer the loan balance to another bank that is charging a lower interest rate. 

However, before opting for this, make sure that you are ready to pay a penalty to the existing lender for transferring your loan to another bank. Moreover, you will be charged a fee even by the bank to which you are transferring your outstanding loan balance. Consequently, you should look into these charges first to ensure that you are not paying more than your capacity. 

To apply for a balance home loan transfer, you can submit an application form to your existing lender and retrieve all the essential documents and proceed to the new lender for further process. 

Try to Lower the Payable Home Loan Interest Rate 

By regularly paying your monthly instalments, you increase the possibility of getting a better interest rate payable upon the upfront payment of the interest rate conversion fees. For this, submit an application with your lender to request them to reduce the interest rate payable on your home loan in the UAE. 

Besides paying your monthly instalment regularly, you should also maintain a good credit Score to get your interest rate reduced on the outstanding loan amount. Another thing you can do is to ask your loan provider to increase the instalment amount a bit to demonstrate your financial growth. This can also help you pay off your loan quickly. 

Pay Larger Down Payment

Ddown payment amount also helps in determining the interest amount for your loan. If you make a higher down payment, you can considerably decrease the effective interest rate as you would need to pay interest on less amount. The down payment range can differ based on your credit history and your relationship with the lender. 

Note that most banks and lending institutions provide loans of up to 80% of the property’s value, depending on your profile. You should plan the down payment portion accordingly while ensuring that you borrow less loan amount to pay less interest. 

Additional Tips to Reduce Your Interest Payment on Existing Home Loans in the UAE

The following are some additional tips to reduce your interest rate payable –

  • Increasing the monthly instalment amount annually – As your income improves every year, you can choose to increase the home loan instalment slightly to save on the interest rate 
  • Pay an additional instalment – In addition to the appraisal, you can use your annual incentives to pay an additional EMI not just to save on the repayment interest rate but also to pay off your loan quicker 

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Key Takeaways

  • Repaying your home loan in the UAE can consume up to 40% of your monthly income. Moreover, the high-interest rate and the monthly instalment amount can be difficult to pay if the tenure is up to 15 to 20 years. You can, however, use various tips and tricks to reduce your interest payment burden on the existing loan. 
  • Prepay your loan in the initial years, as you can significantly reduce the home loan interest rate payable when you make regular prepayments in the starting years. Prepaying a home loan in the UAE lets you settle your existing home loan in part or full and even save money. To prepay a home loan in the UAE, review the early payment terms and the short to mid-term financial conditions so that you can save while prepaying the home loan. 
  • When you opt for a short loan repayment term, you are required to pay more monthly instalment amounts despite a lower interest rate payable. If you opt for a longer loan repayment tenure, the interest rate will be higher despite a convenient monthly instalment. To find an optimal tenure, you can make use of a home loan EMI calculator to derive the suitable EMI and the repayment tenure that does not prove to be a massive burden on your finances. 
  • Another feasible alternative here is to transfer your balance home loan amount to another bank that offers a lower interest rate payable. To apply for a balance home loan transfer, submit an application form to your existing lender, collect all the essential documents, and proceed to the new lender for further process. 
  • Pay your instalments regularly to reduce the interest rate payable for your loan. Moreover, you should also try to maintain a good credit score (of 750 or above) to get your interest rate payable reduced on the outstanding loan amount.

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