From asking your bank for a mortgage payment holiday or knowing where you stand when it comes to defaulting on your payments, legal experts in the United Arab Emirates explain what can and can't be done to relief and aid homeowners during this time.
With businesses struggling to operate as usual all over the globe in response to the COVID-19 outbreak, many people have found themselves facing financial struggles.
The sudden change in circumstances has left some homeowners with questions about missing their mortgage payments, and the consequences that come with it.
What is a mortgage payment holiday?
A mortgage payment holiday is also simply known as a mortgage holiday, payment holiday or mortgage payment break. In other words, it is an agreement between you and your bank where you can stop making mortgage payments for a fixed period. These mortgage payment holidays are designed to help you when you may experience difficulties in keeping up with your repayment obligations – in this case, due to negative economic fallout arising from the COVID-19 pandemic.
What steps have been taken in the UAE to enable such mortgage holidays to date?
For those who have been made redundant by their employers, facing job losses, or have had their salaries reduced due to adverse economic effects of coronavirus pandemic, taking a mortgage payment holiday looks more of an absolute necessity now.
Last month, the Central Bank of the UAE announced an AED 100 billion ($ 27.2 billion) stimulus scheme to contain the economic repercussions of COVID-19 outbreak and a subsequent drop in economic activity in the UAE.
The central bank also ordered lenders to "treat all their customers fairly" and grant "temporary relief" on retail clients' loan payments for up to six months from 15 March. The UAE banks have already started giving their customers a mortgage payment holiday. The holiday periods range between two to six months depending on the bank.
How can I find out if I'm eligible for one?
All the existing customers who earlier obtained mortgage financing from the UAE banks may be eligible for a relief period of two to six months given the central bank's directive to the banks.
However, the relief provided is temporary and you may consider contacting your bank if you are experiencing or reasonably expect to experience repayment difficulties.
My bank is not willing to give me a mortgage payment holiday – will I lose my home?
Depending on your bank, you are relieved from making mortgage repayments for the next couple of months. The banks have been ordered by the central bank to treat its customers fairly.
The bank will assess each existing mortgage on case to case basis. The loan amount, duration of repayment, repayment sources, credit profile, loan to value (LTV) ratio, and financial situation of the borrower will be considered by the banks when receiving the mortgage payment holiday requests.
If a mortgage payment holiday is not given to you and you subsequently default on your mortgage repayments as a result, the bank is well within its legal rights to initiate foreclosure proceedings and sell your home.
What happens if I default on a payment during this financially difficult time?
Unless the central bank announces further relief, all the existing borrowers will have to continue with their mortgage repayments or agree with their banks on the revised terms of mortgage repayments after a couple of months. The bank may foreclose and sell your home and/or present all the post-dated cheques provided by you for immediate payment.
Upon default on mortgage repayments and before the bank initiates the foreclosure proceedings, you will have the following options:
- Paying the remaining balance in full through your own means – if it possible for you to do so.
- Selling your mortgaged home (with the consent of your bank) and paying off the remaining balance.
- Refinancing with a mortgage through a different bank.
It is pertinent to note that if you do settle the mortgage early through any of the above means, you may be charged an early prepayment fee calculated on your remaining balance.
This prepayment fee will have been part of the terms of your mortgage when you applied for it. Please check your mortgage documentation if a prepayment fee applies in your case.
Can I rent my home out if I still have mortgage payments on it?
The terms of mortgage documentation dictate whether you can rent out your home or not. If the mortgage documentation prohibits you to rent out your own home, then you should contact your bank to allow you to rent it out to a third party. The rental income earned may also be used for mortgage repayments.
Have there been any key updates to UAE regulations in regards to mortgages?
The central bank has already ordered lenders to grant temporary relief to their customers on loan repayments for up to six months from 15 March. The central bank's governor also announced that the central bank will assess the situation before 15 September 2020 and, if need be, will extend the stimulus for a further period.
What happens to my mortgage if my residence visa is cancelled?
Under UAE laws, no one can leave the country with outstanding debt.
If you lose your job, you should approach your bank prior to your residence visa being cancelled and inform them of your situation. Depending on your case, the bank may covert your resident mortgage into a non- resident mortgage.
The conversion into a non-resident mortgage may have an impact on the interest rate and terms of your mortgage. A non-resident mortgage may sometimes carry a higher interest rate and different terms.
Nevertheless, you should continue to fulfil all your repayment obligations towards the bank. Under the UAE Civil Code, the mortgagor is responsible for the safekeeping of the mortgaged property until payment of the debt.
If your bank decides not to convert your resident mortgage into a non-resident mortgage, you may pay the remaining balance through our own means (if possible), sell your mortgage home (with the consent of your bank) and settle the remaining balance or re-finance the mortgage through a different bank under a non-resident mortgage. If any of these is not possible, the bank may foreclose and sell your mortgaged home.
Key things for struggling homeowners to know at this time:
Get in touch with your bank
If you expect a default on your mortgage repayments, you need to contact your bank as soon as possible and agree on alternative arrangements, where possible.
Remember to clear all your outstanding debts before you leave the country. Non-payment of debt is a criminal offence and could result in arrest and a possible prison sentence. If you have outstanding debt, you may not be able to leave the country, or you may be stopped and arrested if you try to come back.
Be wary of interest rates
Depending on the terms of your mortgage, interest may build up during your mortgage payment holiday and be added to your mortgage. This means that the amount of your repayment instalments will increase after the mortgage payment holiday has ended.
Keep your bank account
You will also need to keep your bank account in the UAE to continue making mortgage repayments if your bank agrees to convert your resident mortgage into a non-resident mortgage.
Accordingly, your bank account will be converted into a non-resident account, which means you will not be able to avail overdraft facility from your bank. Without an overdraft facility, you will need to have sufficient funds in your bank account to cover any mortgage repayments drawn on it.
Originally Published 22 April, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
