Mortgage in Nigeria: Is it right for you?

A mortgage is a loan from a bank or a financial institution that helps the borrower purchase a house. A mortgage is secured by the home itself, so if the borrower defaults on the loan, the bank can sell the home and recoup its losses. Mortgage payments are usually monthly and consist of four components: principal, interest, taxes and insurance. Mortgages are a good method of investment especially if you are an employee with good income who can easily afford to keep up with the monthly payments. Also, to ensure that you profit from the arrangement, you have to be smart. For instance, you may choose to have tenants who will pay rent that can also be used to offset the payment greatly.

 

TERMS AND CONDITIONS

Before getting a mortgage, the borrower agrees to certain terms and conditions. These specify how long she has to pay the mortgage back, which can span decades, and how much she has to pay each year as well as what she’s required to pay at signing, which is a percentage of the home’s cost called a down payment.

These terms and conditions also specify the rate at which interest accrues, and whether it accrues at a fixed rate, which means the rate stays the same for the entire term of the loan; or at an adjustable rate, where the interest rate can be raised or lowered. Some mortgages are a hybrid of both, like the 7/1 adjustable-rate mortgage (ARM), which accrue interest at a fixed rate for the first seven years of its term, after which the lender may adjust the interest rate.

Borrowers pay back the bank for their mortgage at regular intervals, usually monthly. The payments go toward the total amount of money borrowed, which is called the principal, and the interest, although the latter is tax-deductible. The process of paying off a mortgage is called amortization.

Mortgages are considered secured loans, meaning that they’re backed up by an asset — the house — should the homeowner default. When the borrower defaults, lenders are permitted to take back the house, which is called foreclosure. For this reason, some lenders require borrowers to take out some kind of insurance, such homeowners’ insurance, which covers material damage to the property, or mortgage insurance, which protects the lender in case the borrower defaults.

Beyond the basic mortgage, a borrower has several options to choose from when deciding what’s right for her:

Balloon mortgages: In a balloon mortgage, the borrower’s monthly payments don’t fully amortize the loan at the end of the period, with payments starting low but ballooning to a much larger amount at the end of the term. They’re good for people who expect to have a higher income at the end of the borrowing period than when they started, or who expect to sell their home before the loan period ends, but they may require borrowers to refinance their loan or sell the property.
Government-backed mortgages: The U.S. government issues mortgages to certain qualifying citizens. These include the U.S. Department of Agriculture (USDA) loan, which is given to rural property owners without adequate housing, and the Federal Housing Administration-insured loan, which gives federal assistance to lower-income citizens. Veterans of the armed forces can also qualify for special mortgages.
Second mortgage: Also called a home equity loan, a borrower may take out a second mortgage to acquire a loan using the home’s equity as collateral.

PROCESS OF OBTAINING THE MORTGAGE

Banks in Nigeria have been encouraged to enlist housing cooperatives and associations into the pool of mortgage loan for home seekers. The idea behind this is to the initiative would give those without structured income access to mortgage loans for property acquisition.

The National Housing Finance Programme under the CBN will keep a close tab on the number of mortgages created in the informal sector. As a borrower, you will receive homebuyer counselling prior to closing on your loans.

Financial institutions in Nigeria are expected to come up with mortgage counselling classes to educate borrowers on their rights and obligations of homeownership as well as the legal consequences of default. This would be done just as it is carried out in other sectors of the economy and nations of the world. This is a good score for mortgage trends.

If you are wondering how a property will be valued under this scheme, licensed and independent valuers who are members of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) will be prequalified by the 34 licensed mortgage banks to value property to be listed in the scheme. These Mortgage banks in Nigeria will market the benefits of mortgage loans to eligible borrowers. They will also learn from the microfinance banks that have a wealth of experience working with the informal sector of the economy. This is healthy and interesting for mortgage trends in the country.

The end goal here is to provide mortgage loans to Nigerians as highlighted by the President of Mortgage Banks Association of Nigeria (MBAN), Mr Niyi Akinlusi at a workshop for mortgage banks.

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