What is Restructuring of Loans?

23Nov, 23

What is Restructuring of Loans?

COVID-19 has a major economic influence on the UAE. According to Oxford Economics, the United Arab Emirates could lose 900,000 jobs and ten percent of its population. Many people who have been lucky enough to keep their jobs have had to cope with the difficult situation of pay cuts. Families with heavy mortgage payments have been struck the hardest by this pandemic. Their income has decreased or disappeared, but they must continue to make timely home loan payments. Renegotiating with banks will bring relief to home loan borrowers, even though the situation seems hopeless.

Let’s Understand What is Restructuring of Loans?

Loan restructuring is the mechanism by which borrowers in financial distress renegotiate and change their loan conditions with their lender in order to prevent default. It aids in the continuation of debt servicing and provides borrowers with some flexibility in regaining financial stability.

Why will banks renegotiate their contracts related to Loan Restructuring?

There are two major explanations for this. To begin with, the UAE government has taken a number of steps to assist banks during the COVID crisis. It has, for example, initiated the Targeted Economic Support Scheme (TESS), a Dh50 billion zero-cost funding initiative aimed at assisting lenders in maintaining liquidity. Second, the number of new mortgages has significantly decreased. In this situation, banks will be able to go above and beyond to keep their loyal customers and reduce their losses.

Here are some suggestions for your Restructuring of Loans with your bank.

Interest Rate Renegotiation

The UAE's interest rates have been influenced by the US Federal Reserve's interest rate cuts. The UAE mortgage market is seeing some of its highest prices in a long time. Variable-rate mortgages, in particular, are less expensive than fixed-rate mortgages. Borrowers can take advantage of this situation by obtaining interest rate quotes from a number of different banks. They can use these quotes to get the best price, either with their current lender or with a new one, once they have enough data. Reduced interest rates will reduce the interest portion of the monthly EMI significantly. Borrowers have the option of lowering or maintaining their monthly EMI. The second choice would result in increased principal repayments and a quicker loan repayment.

Requesting a Repayment Postponement

Individuals and businesses must demonstrate that they have been financially affected by COVID-19 in order to be eligible for the TESS programme. More than 320,000 people have benefited from this programme so far. The programme is scheduled to run until June 2021. Many whose finances have been harmed by COVID-19 may use this service to ask banks to postpone their home loan payments.

Borrowers may ask their lenders to restructure their loans if the lender refuses to agree to any payment holidays. Lenders may provide many incentives as part of a loan modification package, such as extending the loan duration, lowering interest rates, or waiving any necessary fees and penalties.