Home Loan Pre-closure in UAE

One of the best ways to save yourself from the burden of high-interest rates is to prepay your home loan. Repaying a home loan completely with a single lump sum before the end of its pre-decided tenure is known as a home loan pre-closure. Besides setting you free from considerable debt, a home loan pre-closing is generally opted for when you want to get rid of your debt early. Some people also consider refinancing their existing home loan with another lender providing better loan terms.

There are many factors one must keep in mind while considering home loan preclosure. Banks levy hefty loan foreclosing charges on the borrower. As a borrower, it is essential to ensure that these charges do not end up being higher than the money you save on interest payment with foreclosure of the loan. Let’s cover all important aspects of home loan foreclosure that borrowers must be aware of.

Different Types of Home Loan Closures

There are many types of mortgage loan closures. Some of them are as follows:

• Preclosure: As discussed above, paying off the entire outstanding loan amount before the end of an agreed tenure is known as home loan preclosure.
• Bad Loan Closure: In some cases, if a borrower is dealing with a financial crunch and unable to pay the outstanding loan, the bank may waive off the remaining loan amount after investigation. The home loan collateral is questioned and compromised in most such cases. 
• Regular Closure: As the name suggests, it is the closure of a house loan aligned with the completion of the tenure. 
• Settled Loan Closure: In this type of closure, if a borrower is unable to pay the entire amount, the lender offers a reduced interest rate to help the borrower pay the outstanding amount. 

Reduce Interest Payment on Existing Home Loan Burden in UAE?

Why Do Banks Levy Home Loan Preclosure Charges?

Banks and financial institutions levy home loan preclosure charges to discourage borrowers from prepaying their mortgage loans. The reason is, if a borrower pre-closes a home loan, they end up paying a lesser amount than what they would have paid upon completing the entire loan tenure. The interest charged on the loans is the major source of revenue for lending institutions like banks. Foreclosing your home loan will lead to a reduced tenure and hence a lesser payable interest amount. Lending institutions charge foreclosure fees to cover the loss they face in terms of interest charged on the loan.

Home Loan Pre-Closure Fees Levied By Different Banks in the UAE

Given below is the schedule of foreclosure fees charged by different banks:

Bank	Early Settlement Fee	Flat Home Loan Interest Rate
RAKBANK Home Loan	1% of the outstanding amount	1.92%
Emirates NBD Home Loan	1% of the outstanding loan amount	2.2%
ADIB Home Finance	1% of the approved loan amount	2.06%
Dubai Islamic Bank Home Loan	1% of the total amount	1.79%
CBD Mortgage Loans	1% of the outstanding amount	2.2%

How to Preclose a Home Loan in the UAE?

Following are the three simple steps to pre-close a mortgage loan:

• The first step is to write a detailed letter or email to the lender you've borrowed the loan from. This letter should contain the details of your home loan like the loan account number and other required information. 
• Once the lender receives your foreclosure application, it will calculate the total outstanding amount on your home loan and prepare a payment schedule. Once the final payable amount for loan foreclosure has been decided, you will be notified by the bank. The final payable amount will also include the home loan preclosure fee. 
• Pay the total due sum to close your home loan account. Ensure that the bank has returned all the original documents and provided you with a NOC (No Objection Certificate) stating that there are no outstanding dues. One more NOC should be provided by the bank declaring that both you and the bank have agreed to the foreclosing of the loan. 

Documents To Be Collected After Home Loan Pre-Closure

Once the pre-closure is completed, it is the responsibility of the bank to hand over all the original documents to the borrower. Once you clear all the dues, make sure to collect the below-mentioned documents from your bank:

• Original Documents
  • Loan agreement
  • Sale deed
  • Power of Attorney
  • Title deed
• No Dues Certificate
• Document proving removal of lien on the property
• Non-encumbrance certificate
• Post-dated cheques (if applicable)

In Case of Home Loan Holder’s Demise:

• All the original property documents should be recollected in the Power of Attorney (POA) format. 
• To collect the documents, the nominee or a legal heir needs to write a letter to the lender requesting the release of the held documents.
• To surrender the property to the legal heir, a letter of abdication relinquishment needs to be written to the bank.

Home Loan Prepayment in UAE

Important Things to Remember While Foreclosing a Home Loan

Below are some important things you should keep in mind while preclosing a home loan in the UAE:

• Make sure to collect all the original documents that were handed over to the bank at the time of loan sanction. 
• Collect the no-dues certificate from the bank stating that you've cleared all your dues. 
• It is important to update your credit Score after closing the home loan. This will help you avail of more loans in the future easily. 
• Keep a chequebook handy as you'll need to pay the final settlement amount. 
• Make sure to get a stamped and signed acknowledgement certificate from the bank regarding the final payment.  

Are There Any Disadvantages of Pre-Closing a Home Loan?

There are certain downsides to pre-closing a home loan. Some of these are given below:

• You need to pay the foreclosure charges levied by the bank before closing a home loan. Home loan foreclosure fees and charges may sometimes exceed the money saved on the interest of the loan. The borrowers must make sure that these charges do not exceed the money saved on interest and hence foreclosing their home loan remains financially beneficial.
• Foreclosing your home loan will lead you to spend a significant sum of money in an instant. You may save on the interest but, the lump sum payment will impact your finances.

A home loan preclosure can surely help you save some interest. Foreclosing a home loan is a smart financial decision only if the interest amount payable is substantially higher than the foreclosing fees. If you're considering home loan foreclosure because of the high interest rates levied, you can consider refinancing your mortgage loan with a different lender offering lower interest rates. You can check out our website, Policybazaar.ae, to find out the top home loan providers with the lowest interest rates in the UAE.

Given below are a few frequently asked questions about home loan preclosure in the UAE. Read on to find out more about the topic.

FAQ's