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UAE central bank removes 3% early settlement fee for mortgages

Central Bank of the UAEThe Central Bank of the UAE has directed all banks to reduce the early settlement fee on mortgages to a maximum of 1 per cent or 10,000 dirhams, whichever is less, for the borrowers who want to exit their mortgages early.

The early settlement fee was set at 3 per cent in June 2018.

The central bank said in a circular that the borrowers who had already paid the 3 per cent settlement fee can get their refund from their respective banks within 30 days. It did not specify any timeline for the refunds as banks charged their customers at different times.

“Early settlement or partial settlement fee for applying to home loans has been reverted to a maximum one per cent of the outstanding balance or Dh10,000, whichever is less. Banks and finance companies that arbitrarily changed the stated terms of the fees in existing customer agreements are required to respect the original terms of the agreement and refund all overcharges for all customers based on their original fee within 30 days of this notice,” the central bank said in the circular.

In 2018, the UAE Central Bank had announced that lenders could charge up to 3 per cent of the outstanding home loan amount on clients who exit their mortgage early. The banks had to prove financial loss in order to charge the full 3 per cent.

This move will help boost market sentiment and will result in an increase in buyout and re-mortgaging activity.

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