Bank would not reduce interest to mortgage, what should borrower do?

I have a mortgage with a local lender but the rate is uncompetitive and even though I have never missed a payment and am a good customer, they won't consider reducing the interest rate. New customers are paying much less than I am, which seems unfair. When I told them I was thinking of going to another bank I was reminded that if I did they would charge me a penalty of 4 per cent of the loan amount. This was apparently in the small print that I signed, but I still just feel as if I am being ripped off. Is there anything I can do about this penalty? HF, Dubai

The rules regarding the charges banks can levy for any service are set out by the Central Bank of the UAE and all banks and lenders are obliged to comply. With effect from the start of 2014 a Central Bank ruling came into effect that limited the redemption penalties for all mortgages and this applies retrospectively. The maximum charge is 1 per cent of the balance or Dh10,000, whichever is lower. Any paperwork showing a higher charge, even if agreed by the borrower, will not stand so if any lender tries to charge a higher fee the borrower can make a formal complaint to the Central Bank, which will back them up. Although the fee can still be a substantial amount, it is much less than charged previously and makes it cost-effective for many borrowers to rearrange their mortgages.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai, with over 20 years’ experience. Contact her at [e-mail]. Follow her on Twitter at @FinancialUAE.

The advice provided in our columns does not constitute legal advice and is provided for information only. Readers are encouraged to seek appropriate independent legal advice.

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