5 Ways to Better Manage Home Loan EMIs

The year 2020 was financially difficult for a lot of people due to job losses and pay cuts. According to the World Bank, UAE’s economy had contracted by 6.3% in 2020 . The year 2021 is expected to see a modest rise, followed by a 2.4% increase in 2022. This scenario has put a lot of undue pressure on households dealing with the burden of EMIs. While things are difficult, there are several ways in which households can sail through this crisis. Here are 5 tips for managing repay home loan EMIs better.

According to a survey, 40% of UAE residents saw an increase in their personal savings since the COVID-19 pandemic. For example, people have cut down on the number of times they dine out. Also, travel restrictions worldwide have led to reduced overseas travel expenses. Work-from-home arrangements have helped people save on their travel costs. Borrowers can use these savings to pay more than their monthly EMIS towards their mortgages and make faster repayment of the mortgage loan.

An offset account can help in providing mortgage loan relief. In an offset account, borrowers can link their loan account and their savings account. If any funds are credited to the savings account, the loan account is reduced accordingly. For example, someone has a mortgage of Dh400,000, and they have savings of Dh150,000. In this case, the outstanding loan amount will be calculated as Dh250,000 (Dh400,000 less Dh150,000), and borrowers will have to pay interest on this amount. Specifically, those who are seeing an increase in their savings due to COVID-19 can benefit from an offset account.

Interest-only loans can reduce the EMI but can delay the repayment of the mortgage loan. In such loans, the monthly payments cover only the interest obligations but no principal repayments. This means borrowers are left with a large liability to be settled at the end of the loan term.

In recent times, home loan rates have dropped significantly in the UAE. For the first time in many years, a variable mortgage rate is cheaper than a fixed-rate mortgage. Given that interest rates are not expected to increase in the future, borrowers can get mortgage loan relief with a variable rate mortgage. Along with asking for a better interest rate, borrowers can also negotiate a more favorable length for repayment of the mortgage loan.

Borrowers can get mortgage loan relief either by renegotiating with their existing lenders or switching to another lender. However, while switching to another lender, one should compare the mortgage switching costs. This will help them compare the savings received from switching lenders.

There are instances where the situation gets so difficult for borrowers that they find it hard to negotiate a settlement with banks. In such cases, getting professional assistance can help in the repayment of the mortgage loan. FREED Financial Services specializes in providing mortgage loan relief to borrowers. FREED has assisted hundreds of borrowers by negotiating appropriate solutions with banks without resorting to any legal procedures.