Banks can no more charge a 3 percent early settlement fee for borrowers who wish to exit their mortgage early, under a new directive from the UAE Central Bank. Rather, the fee has been reduced to just 1 percent on the outstanding mortgage amount or AED10,000 – whichever is less.
And borrowers 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 applicable to home loans has been reverted to maximum one percent of the outstanding balance or AED10,000, whichever is less. Banks and finance companies that arbitrarily altered the stated terms of the fees in current customer agreements are required to respect the original terms and conditions of the agreement and give back or refund all overcharges for all customers based on their original fee within 30 days of this notice. ”Chris Schutrups, managing director, Mortgage Finder, agreed with the decision and stated it was a great boost for borrowers, particularly in the present economic climate. He believed the news will persuade borrowers to switch their mortgage to lenders offering better interest rates and will end in an increase in buyout and re-mortgaging activity. The recent interest rate cuts that we have witnessed are pushing banks to be all the more competitive with their products. We have seen a decline in mortgage rates since the beginning of the year. All of this is happy news for those borrowers who were stuck with mortgage products that did not mirror the changing market.
In 2018, the UAE Central Bank had notified 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.