Leveraging (mortgage) is key in making the best of your real estate investment, or getting the home suitable for you and your family.
The right knowledge makes the difference in the quality of your decisions when you are attempting an investment.
The are questions that we may feel embarrassed to ask. Here are answers to 11 of those awkward questions.
1. What is Ibor, Libor and Eibor.
Ibor is an Interbank offer rate. Simply this is the rate of interest that banks charge to lend money to each other. Libor refers to London Interbank offer rate. While Eibor is the Emirates interbank offer rate. Those rates are usually used to benchmark mortgage variable rates or rental rates for Ijara agreements ie. Conventional and Islamic mortgages.
2. What is a preapproval.
A preapproval is issued by the financing institution confirming the individual’s or entity’s eligibility. To get the preapproval financiers evaluate your personal financial status without looking considering the property you are planning to purchase.
3. What is the amount I will get as a mortgage if I am preapproved to get up to 1 million with an LTV of 70% while the property purchase price is 2 million.
As long as 70% of the property value higher than the eligibility value the maximum you will get is the 1 million which is in this case your maximum eligibility.
If the price is 2 million the 70% of the value is 1.4 million while your maximum personal eligibility is 1 million.
4. What if the valuation comes lower than the purchase price.
The amount of mortgage you will get is equivalent to your LTV approved multiplied with whatever is smaller the purchase price or the valuation.
5. What is LTV.
LTV refers to loan to value. This is the ratio of the borrowed amount relative to the property value.
6. What happens if I can’t pay my mortgage payment.
It is always advisable to have 3 to 6 months of mortgage payment in a saving account to secure that you are able to pay the payments in case you lost your income or had an uncomfortable financial situation.
Regardless if you have so it is always advisable to negotiate at the time you get the mortgage the possibility of freezing or deferring payment at any time within your mortgage.
Not paying few mortgage payment may subject you to legal implication that may eventually end up in a loosing your property.
7. What happens after the fixed interest period ends.
If you got a mortgage with a fixed interest for an initial period you can either negotiate an extension to that period with your bank or try to have another financier purchase your mortgage and offer you another period with a fixed interest. if both options don’t worry you will be paying off your mortgage at the variable rate including Ibor and the bank’s margin.
8. What happens if I need to pay the mortgage faster.
You will regularly pay a small penalty or additional interest for paying your mortgage payments early in part or in full.
9. Do I need a life insurance with my mortgage and why.
Yes you do. It is usually at the value of the mortgage or higher and meant to pay off at least the due payments.
10. Do I need a home insurance while I have a mortgage.
Although your bank usually provides you with a home insurance it doesn’t usually have the comprehensive cover you would expect of a policy. It is advisable that you purchase extra insurance cover. The right insurance cover will help you safe guard your investment.
11. What is the best period for the mortgage, 5, 10, 15 years or longer.
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by Makram H. Hani
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