Navigating mortgage loan repayments can be challenging, especially during economic downturns. Homeowners in the UAE facing difficulties in meeting their mortgage obligations may consider options like leaving the country, but this does not absolve them of their debt. Over time, the accumulated interest and penalties on the mortgage can escalate significantly.
To address such situations, there are several strategies available, including debt settlement, debt restructuring, and declaring bankruptcy. Each option has its own implications and suitability depending on individual circumstances.
Debt Settlement: This involves negotiating with the creditor to pay off the debt in a lump sum, which is usually less than the total amount owed. The process includes liquidating assets to cover the loan. If the sale proceeds don’t fully cover the outstanding loan, the remaining amount can be negotiated with the bank. However, this option impacts the credit rating for years and requires time to rebuild creditworthiness.
Insolvency/Bankruptcy: As a last resort, this legal protection prevents legal persecution and provides a three-year plan for settling debts, overseen by court-appointed experts. This approach has long-term effects on credit scores and can hinder future borrowing opportunities, signaling to creditors a complete depletion of revenue sources.
Debt Restructuring: This legal method involves altering mortgage terms to make repayments more manageable, considering the borrower’s financial status and repayment history. Banks may offer relief through extended repayment periods, reduced interest rates, or a step-up repayment plan.
Jaya Ratnani, a managing partner at Freed Financial Services, outlines a five-step process for debt restructuring:
- Prepare a summary of your current financial situation, including all expenses and debts.
- Account for your current expenditures, like living, education, and medical expenses.
- Include total household income in the restructuring evaluation.
- Continue making payments, even if reduced, to show commitment.
- Approach the bank with all necessary paperwork and persistently negotiate a repayment strategy.
Factors influencing restructuring include credit history, age, work capacity, property market value, and financial records of the spouse. Based on these, banks may adjust the loan’s interest rate, tenure, offer payment holidays, or reschedule payments.
Jaya Ratnani emphasizes that these views are her own, representing her expertise as a managing partner at Freed Financial Services.
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