Home Loan Prepayment in UAE

Generally, a home loan extends over multiple years after purchasing a home. As a result, the interest rates associated with it, especially with home loans with longer tenure, exceed the principal amount by a great amount. The best way to deal with the burden of high-interest costs is to prepay your home loan. However, when it comes to home loan prepayment in UAE, several crucial factors need to be considered to settle your loan amount without exposing yourself to financial risks. Let's discuss these factors in detail!

Top 5 Factors to Consider Before Prepaying Your Home Loan in UAE

1. Stage of your home loan

The biggest advantage of prepaying your home loan is that it saves you from hefty interest charges. But the amount you'll save on your home loan directly depends on the stage of your home loan. For example: prepaying your loan in the last stage of your loan repayment will not make a lot of difference. Note that the interest rates on an EMI are the highest during the initial phase of your home loan. So, if you're planning for prepayment, consider doing it at the initial stage itself. 

2. Your age

The age of the borrower is another important factor that needs to be considered at the time of home loan repayment in the UAE. If you're close to your retirement, it's strongly recommended to settle your home loan at the earliest. The reason behind this is simple: after retirement, you will not have a stable income to pay your home loan. Further, as you age, your medical expenses will also grow significantly, making you more likely to become a defaulter. To avoid this, it is better to clear your dues as soon as possible. 

3. If the loan repayment requires you to break your emergency fund

Most people make the mistake of using their emergency funds for the prepayment of their home loan. It is very important to understand that the primary objective of having an emergency fund is to use it in an unforeseen financial crisis. Utilising this money for home loan prepayment can push you towards buying more loans at higher rates in case of emergency. Therefore, always keep your emergency fund well-stocked. Never use it for settling your mortgage loan in UAE. 

4. EMI reduction Vs loan tenure

In most cases, home loan borrowers are provided with two options at the time of choosing home loan prepayment. You can either opt for a reduction in your existing EMIs or bring down the tenure of your loan. Note that a reduction in home loan tenure is a better option as it helps you save more interest costs. But again, your income plays a big role in deciding between the two options. Some borrowers also consider the EMI reduction option in situations where their disposable income can't handle the increasing rates of interest. 

5. Consider the Home Loan Balance Transfer (HLBT) option

Instead of planning to prepay a home loan in UAE, you can also consider the HLBT option. This option allows you to transfer your outstanding loan amount to a lender with lower interest rates. This is a great option that not only saves you from high-interest rates but also makes sure that your emergency funds and investments are not utilised for loan prepayment. However, when you consider this option, it is advised to analyse and compare the amount you'll be saving through the HLBT option. This will help you in making the right decision. Further, you can host our website to find the top lenders in UAE with minimum interest rates. 

When Should You not Prepay Your Home Loan?

There are some situations where it is strongly advised to invest instead of prepaying your home loan.

Some of these are as follows:

• In phases like the Covid-19 outbreak, it is not a good idea to spend all your savings to prepay a home loan in UAE. Instead, you should stock up your savings as much as you can. You never know when you might face a financial crunch. In situations like this, a good idea is to spread your money across different investments and create a stable financial future. Another thing you can do is, divide your surplus fund into two portions. Now, use one part for loan prepayment and invest another to build future wealth. This will grow your money while keeping you away from debts.  
• If you don't already know, the UAE government offers great tax benefits on home loans. So, by continuing with your home loan, you can enjoy various tax benefits along with a chance to earn impressive returns on your well-balanced investment portfolios. 

  How to Pay The Home Loan EMIs in UAE

When Should You Consider Prepaying Your Home Loan?

Following are some situations where it is advisable to prepay home loan in UAE instead of making future investments:

• If you are handling multiple loans besides your home loan, then it is always a good idea to free some of your debt by prepayment. When you do so, always prepay the loan with the highest interest rates. 
• If your risk tolerance level is low and you put your money in low-risk, low-return options like fixed deposits, then it's better to utilize your surplus amount by settling your home loan. 
• As mentioned earlier, if you're close to your retirement, then loan prepayment is a much wiser decision. 

Home loan prepayment is a great option as it reduces your debt burden. However, doing so by utilising your emergency funds or redeeming your investments can hurt your financial health to a great extent. Therefore, always use your surplus funds to prepay your home loan in UAE. Alternatively, you can also consider the Home Loan Balance Transfer option by shifting your loan to a new lender with affordable interest rates. At Policybazaar UAE, we have the best lenders who offer low-interest rates along with several other benefits. Get your quotes TODAY!