One of the common questions by homeowners is, ‘Can I have two mortgages on one property?’ In short and simple words, yes, as long as the homeowners meet the eligibility criteria. While you can get second mortgages, it is crucial to understand the benefits and financial obligations associated with them.
Read on to discover everything about second mortgages, including their pros and cons.
- Can I Have Two Mortgages on One Property?
- Eligibility Criteria for a Second Mortgage
- Tips to Get a Second Mortgage
- Pros and Cons of Having Two Mortgages on One Property
- Alternative Financing Options
- FAQs
Can I Have Two Mortgages on One Property?
Homeowners can opt for a mortgage to buy property in the UAE, depending on their monthly income and property value. In cases where homeowners require additional financing, the commonly asked question is: ‘Can I have two mortgages on one property?’ UAE mortgage laws permit multiple mortgages on one property as long as homeowners meet the eligibility criteria.
Typically, the first loan is known as a primary mortgage, and the second one as the secondary mortgage. Unlike primary mortgages, a secondary mortgage is borrowed against the equity of the property. Equity is the difference between the market value of the property and the amount required to pay off the primary mortgage.
Eligibility Criteria for a Second Mortgage
Now that we have answered the question: ‘Can I have two mortgages on one property?’, let’s move on to the eligibility criteria. The eligibility requirements for multiple mortgages on one property vary by lender. Let’s see what lenders consider when approving second mortgages:
1. Equity in the Property
Second mortgages are offered against equity in the property, so it is crucial to have a substantial percentage of equity. The higher the percentage, the greater the chance of mortgage approval and the higher the loan amount.
2. Credit Score
Most lenders consider the credit score of the borrower when approving second mortgages. In this case, a high score makes the borrower more capable, while a low credit score increases default risks.
3. Monthly Income
Lenders also consider the monthly income and employment stability of the borrower. This requires proof like pay slips and company bank account statements (for business owners).
4. Debt-to-Income Ratio
It is equally important to have a lower debt-to-income ratio, which suggests that a borrower can easily pay off mortgage repayments. Here is how you can calculate your debt-to-income ratio:
Suppose a borrower has a monthly income of AED 10,000 and mortgage repayments are AED 2,000. This yields a debt-to-income ratio of 20%, which is appropriate for second mortgages. Although the exact percentage varies by lender, a debt-to-income ratio of less than 25% is best for multiple mortgages.
5. No Objection Certificate from the First Lender
Lastly, a borrower must obtain a No Objection Certificate from the first lender. It is a requirement by the Dubai Land Department (DLD) and the UAE Central Bank.
Tips to Get a Second Mortgage
Navigating the second mortgage process can be challenging, especially if you are applying for the first time. It is best to hire a mortgage broker who can help you with the mortgage approval. Here are some tips to increase your chances:
- High Equity: To increase equity, pay off a significant percentage of the primary mortgage or wait for inflation in property prices.
- Credit Score: Avoid taking loans and pay utility bills on time to improve your credit score.
- Low Debt-to-Income Ratio: Lower your debt by paying off mortgages and loans.
- Employment Stability and Monthly Income: Have stable employment and steady income flow to improve the chances of mortgage approval.
Pros and Cons of Having Two Mortgages on One Property
The idea of additional financing may seem exciting, but it is crucial to consider the pros and cons of second mortgages. Let’s look at the benefits and financial risks of second mortgages:
| Pros | Cons |
| Receive additional funding for home financing. | Increases monthly mortgage repayments. |
| Utilise property equity to obtain mortgage approvals. | Higher repayments lead to higher default risks and financial burdens, especially in unforeseen circumstances like employment termination. |
| Due to higher risks, interest rates are also higher. | |
| Dual property mortgages reduce property equity as the loan amount is higher. If market conditions change, there is a risk of negative equity, where the loan amount exceeds the property value. |
Alternative Financing Options
If you don’t want to deal with the financial risks, you can always consider alternative financing options. Let’s look at these:
1. Mortgage Refinancing
Borrowers can consider mortgage refinancing, where they can obtain an additional loan on the same mortgage. This increases monthly repayments but reduces default risks.
2. Home Equity Loan or Line of Credit (HELOC)
Borrowers can consider a home equity loan instead of a second mortgage. Similar to a second mortgage, a home equity loan is borrowed against equity, but the interest rates are lower.
3. Investments or Savings
Lastly, borrowers can consider using savings or investments to cover additional expenses. This reduces the financial burden and eliminates the risks associated with second mortgages.
FAQs
Yes, homeowners can obtain multiple mortgages on one property as long as they meet eligibility requirements. This includes having a significant equity in the property, a lower debt-to-income ratio and stable employment.
First, the debt-to-income ratio must not exceed 50%. Second, the loan-to-value ratio cannot exceed 80% for expats and 85% for UAE nationals. Third, the loan term cannot be more than 25 years.
We must have answered your question: ‘Can I have two mortgages on one property?’ If you are considering second mortgages, be aware of the associated costs and risks. It is always better to plan your expenses and use the Affordability Calculator to determine the ideal amount you should borrow.
If you are buying off-plan properties, you can apply for an off-plan mortgage in Dubai. Moreover, follow this process to get a mortgage in Dubai.
