UAE Central Bank removing 3% early settlement fee for mortgages
Borrowers who have already paid the 3% settlement fee are eligible for a refund from their bank, within 30 days
This news will encourage borrowers to switch their mortgage to lenders offering better interest rates
This decision will result in an increase in buyout and remortgaging activity
Banks will no longer be able to charge a 3 percent early settlement fee for borrowers who want to exit their mortgage early, under a new directive from the UAE Central Bank.
Instead, the fee has been reduced to just 1 percent on the outstanding mortgage amount or AED10,000 – whichever is less.
And those who have already paid the 3 percent settlement fee have been instructed they can get a refund from their banks within 30 days.
A circular sent out by the UAE Central Bank said: “Early settlement or partial settlement fee for applying to home loans has been reverted to maximum one per cent of the outstanding balance or AED10,000, whichever is less. Banks and finance companies that arbitrarily changed the stated terms of the fees in existing customer agreements are required to respect the original terms of the agreement and refund all overcharges for all customers based on their original fee within 30 days of this notice.”
The news will encourage borrowers to switch their mortgage to lenders offering better interest rates and will result in an increase in buyout and remortgaging activity.
“The news from the Central Bank is positive as it now opens up opportunities for those borrowers who were paying a higher rate of interest on their mortgage to find a better deal and save money.
“The recent interest rate cuts that we have seen are pushing banks to be more competitive with their products. We have seen a decrease in mortgage rates since the beginning of the year. All of this is great news for those borrowers who were stuck with mortgage products that did not reflect the changing market.”
In 2018, the UAE Central Bank had announced that lenders could charge up to 3 percent of the outstanding home loan amount on clients who exit their mortgage early. The banks had to prove financial loss in order to charge the full 3 percent.