If you are applying for home financing in the UAE, banks perform a Mortgage Stress Test on your application. But, as the term implies, it is not really a test. Instead, they are sets of rules that lenders use to understand if you are the right candidate for a mortgage.
This is the bank’s way of computing your disposal income and looking at your affordability based on a higher interest rate than what’s offered on your Mortgage.
A Mortgage Stress Test for Existing Customers
Despite a conservative approach, one may face unforeseen circumstances such as the current economic crisis due to COVID-19. Reduced Salaries, prolonged receivables, drop-in rental yield may impact your ability to make timely repayments. Such circumstances may require renegotiations of the terms of your Home Loan repayment.
In this situation, banks tend to test affordability during and post the restructure period considering a significant drop in income, business loss, and unemployment.
A Mortgage Debt Management company such as FREED Financial Services can negotiate on your behalf and obtain a favorable deal. Before negotiating with the bank, a Mortgage Stress Test with the experts can help plan a pitch with better solutions.
How to utilize Stress Test for Debt Management
To assess optimal solutions for approaching the bank with a restructuring or settlement plan, an expert will evaluate the below:
1. Current Financial Situation
This includes your in-depth financial analysis of cash flow and is measured with the time you took the home loan. It will also give an insight into your current capacity to repay the Mortgage.
2. The setback are you facing
Finances may plummet due to business income loss, salary cut or job loss. This aspect can help find out an approximate period by when your affordability will increase.
3. The repayment timeline
The expert can formulate a restructuring deal depending on the loan balance, timeline and your current affordability. Although Central bank has removed the maximum age cap, many banks still consider age as a factor while renegotiating the terms of your loan.
4. Loan to Market Value
If the current Loan to Value is greater than 100% and your ability to repay the reduced installment and is not evident, restructuring the payments may not be an option and most banks would rather offer a settlement of the loan.
5. Planning to leave the UAE
In adverse conditions, you may contemplate saving money by returning to your country. For such scenarios, the rental income will need to assigned to the banks and your Mortgage will be converted into a non-resident Mortgage with revised terms.
Depending on the answers to the question, the Debt expert will plan a solution that might involve either restructuring of the loan amount with lowered interest, extended payment timeline, or loan settlement by selling the property.
How can FREED help?
FREED Financial Services is an exclusive Mortgage Debt Management company that ensures you receive the best solution with your bank to navigate your financial situation. We provide a free consultation session to evaluate your Mortgage situation under the stress test. Call us on +971 4 3691880 or write to us at [email protected] to receive options to reduce your mortgage burden.