Raising finance to purchase your property can be done in a number of ways.
The most important factor when choosing how to finance your investment, is to consider all the options available.
These options can vary depending on the country in which you are purchasing your property.
Our Finance Advisors can provide you with all the information you require based on your personal circumstances.
If you are considering a loan or mortgage to purchase your property, and example of the options available in Dubai as as follows:
Standard Variable Rate Loan
This is the most popular mortgage loan in UAE. The interest rates on these loans vary at anytime depending on the market forces. The features of a Standard Variable Rate Loan vary dependant on the individual lender but these loans generally offer an offset facility, no limits on early additional repayments and in most cases with a fractional early pay-out penalty fees depending on the mortgage lender's fees and charges policy guidelines.
Fixed Rate Loan
Are funds lent over a set of times at a set interest rate. This gives the borrower the certainty of knowing exactly what their monthly repayments will be should their circumstances change. Some mortgage lenders may impose early repayment penalties if client makes a lump sum reduction to the loan or pay the loan out in full. However a Fixed Rate Loan is ideal in a rising interest rate market as these guarantees the clients of their interest rate and repayments for a set period of time.
London Interbank Offered Rate (LIBOR)
An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily by the British Bankers' Association. The LIBOR is derived from a filtered average of the world\'s most creditworthy banks' deposit rates for larger loans with maturities between overnight one full year.
The LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money for one year at LIBOR plus 4 or 5 points.
Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and, of course, England.
Emirates Interbank Offered Rate (EIBOR)
The interest rate charged by banks in the United Arab Emirates for interbank transactions. In most cases, EIBOR is the reference rate most commonly used by borrowers and lenders to conduct financial transactions in Dubai and the surrounding Emirates.
Similar to the London Interbank Offered Rate (LIBOR), EIBOR futures contracts are available for trade and there are various EIBOR offered rates depending on the life of the loan.
Many Islamic banks use EIBOR rates as benchmarks for determining the rental rates for special leasing agreements called Ijara.
Ijara
Is an Islamic form of leasing. Here the bank buys capital equipment or property and leases it out under installment plans to end-users. As in conventional leasing there may be an option to buy the goods at the end of the Ijara built into the contracts. The installments consist of rental for use and part-payment.
The customer selects the asset to be financed and the bank then purchases it from the supplier and leases it to the customer for an agreed period. Refinancing of assets owned by the client in a sale and leaseback arrangement is allowed under certain circumstances. The bank being the owner of the asset is paid rent, fixed or variable as agreed by the parties. The rental amount is often linked to Libor.
The bank must exercise all the lessor's rights and obligations such as maintenance, insurance and repair. The lessee gets the use of the asset for the period of the lease subject to payment of rent. The lessee may assume the obligations such as maintenance etc. for a reduced rent.
The fact that there is a real good to be financed means that it is the most Shariah compliant of the "mark-up" products.
Murabaha
The majorities of Islamic financial transactions do not involve a share of profit but incorporate a locked-in return. Most are "mark-up" structures such as Murabaha which has the lion's share of such transactions.
In a Murabaha, the bank finances the purchase of an asset by buying it on behalf of its client. The bank then adds a "mark-up" in its sale price to its client who pays on a deferred basis. There is supposed to be a genuine commercial risk between the purchase of the asset from the seller and the sale of the asset to the person requiring the goods. And there has to be a genuine item involved which requires purchasing and financing. *All applications are subject to bank approval
