I am Emirati, work in the government sector in Dubai and have outstanding debts of Dh350,000. This is made up of two loans, a personal loan of Dh300,000 and a car loan of Dh50,000. I don't have any credit cards. I took out the personal loan to start building my house but then the contractors ran away. Now I am stuck with this debt and I want to complete my villa, which needs at least Dh1.7 million to finish it. I only need a loan for Dh1 million, as I am getting Dh700,000 from the government housing establishment, however no bank is willing to finance me. I earn Dh33,000 a month and my monthly instalments are Dh12,000 for the personal loan, Dh1,000 for the car loan and Dh6,000 for my accommodation. What do you suggest? MS, Dubai
Debt panellist 1: Jamal Alvi, the chief credit officer at Abu Dhabi Islamic Bank
Banks will finance MS as long as the Debt Service Ratio (DSR) is within 60 per cent for government programmes, as prescribed by the Central Bank. The customer needs to apply for a cash-out facility or construction finance against his property and use the funds for completing the construction. In case he does not meet the DBR criterion, then he also needs to approach the Government to increase his housing assistance amount from Dh750,000 to a higher amount. Our understanding is that Government provides financing of up to Dh2m.
To do this, the customer is advised to:
• Get the property evaluated in its current state.
• Seek an equity release/cash out facility from the bank where MS’s salary is domiciled.
• Use the proceeds of the equity release to pay off the current personal loan and reduce the DSR (the monthly instalment on Dh1.3m will be about Dh8,000, the Mohammed Bin Rashid Housing Establishment payment Dh3,000 and the car loan Dh1,000, making the DSR 36 per cent)
• To secure the Dh750,000 in government funding, MS needs to achieve a certain stage of completion of construction. At that stage, the government will release these funds – but only against the mortgage of the property. Since there will already be a mortgage on the property in favour of the bank that would have lent Dh1m or so, that bank will have to provide an NOC (no objection certificate) so that a second charge is created in favour of the government funding agency.
Debt panellist 2: Ambareen Musa, the founder and chief executive of Souqalmal.com
Your current loan instalments take up 40 per cent of your monthly salary, so logically the first step towards improving your financial situation should be to lower your DBR. And since your current DBR makes it hard for you to qualify for a home construction loan, you will have to find a solution to fix that first.
To reduce your DBR you will have to either pay off your personal loan completely or find a way to stretch your repayments over a longer tenure. The former option makes more financial sense, so you can explore that to begin with. Do you have any savings you could tap into, or any investment and assets you could liquidate? Even an interest-free loan from your relatives or employer, or a few months’ advance salary, can help you settle a huge chunk of the personal loan.
Alternatively, you can go the debt consolidation route to avail lower monthly instalments. You could approach banks which offer debt consolidation loans, with some offering tenures of 12 years or even higher for Emiratis.
Now coming to the second step – qualifying for a loan to finish the construction of your home. Most banks in the UAE offer home construction loans for Emiratis, so it would be best to browse the market for good deals. You can also combine your salary with your spouse or parents’ income to boost your loan eligibility, if that’s an option. In case there is no penalty on delayed construction, you can also postpone the construction for a year or two, so you have more time to build up your savings.
The Debt Panel brings together four financial experts: Jamal Alvi, the chief credit officer at Abu Dhabi Islamic Bank; Ambareen Musa, the founder and chief executive of the comparison website Souqalmal.com; Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life; and Keren Bobker, The National's On Your Side columnist and an independent financial adviser with Holborn Assets in Dubai. Together they answer queries in a weekly online column to help readers better tackle their debts. If you have a question for the panel, write to firstname.lastname@example.org.
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