23 October 2016Last updated

Features | People

Ask the expert: top tips when taking a mortgage loan

Banks in the UAE have standard benchmarks for loan approval

11 Oct 2016 | 10:42 am

I am an expat living and working in Dubai for the past four years, and I’m now planning to take a mortgage loan to buy a property here. How I can calculate my DBR?

Debt Burden Ratio (DBR) is an exceptionally vital digit when applying for a mortgage or any other loan. It’s a regular method used by banks or lenders to screen loan applications in line with the buyer’s aptitude to settle up the amount, based on the current revenue or salary and payment obligations. It helps determine if the applicant can borrow money or obtain credit.

Banks in the UAE have standard benchmarks for loan approval. To identify the purpose of the loan, the bank studies the 5Cs: collateral, capital, credit history, character, and the cash flow.

The Central Bank of the UAE instructed all banks to carry out a stress test on customers while calculating their debt burden in order to eliminate the chances of over-indebtedness during repayment of the loan. Indeed, to determine if you qualify for a loan, the bank will consider DBR, which includes your credit report performance, monthly income and how much you can cumulate for the upfront payment.

However, the bank takes only 50 per cent of total monthly income to calculate your loan eligibility. For a broad idea of what your DBR might look like to banks, divide regular expenses by the total gross monthly income. Or use this: DBR = (personal or mortgage loan payment, car loan repayment, other liability payments + 5% of total credit card limits)/monthly income.

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Dhiren Gupta

is a Dubai-based finance and real estate advisor