In our previous article on the ‘7 Alternative Financing Options to Buy a House in Nigeria’ we highlighted mortgage as an alternative financing method in Nigeria. In developed countries like the United States and the United Kingdom, mortgage is a primary financing method to owning a home. The Mortgage Bankers Association (MBA) estimates that mortgages finance around 85-90% of home purchases in the US.
In Nigeria, some factors in the country make it hard for people to be able to get mortgage. Some of these factors are:
a.) The Economic Climate
The challenging economic situation in the country makes it hard for mortgage to be accessible to people.
b.) Limited Access to Credit
Commercial banks, the primary providers of mortgages in Nigeria, often maintain strict eligibility criteria. These include high-interest rates and low-down payment requirements. This can create a barrier to entry for many, particularly those with lower income levels.
c.) Data Constraints
The lack of comprehensive data on mortgage in Nigeria makes it difficult to precisely gauge market trends and pinpoint specific limitations. A more detailed and accessible infrastructure will provide valuable insights for the government and the people.
Given these challenges, it is crucial for those who meet the requirements to educate themselves on the key considerations before choosing a mortgage that aligns with their needs and desires. Below are seven key points to consider before choosing a mortgage in Nigeria
7 Things to Consider Before Choosing a Mortgage in Nigeria
1.Interest Rates
One of the most important factors to consider when choosing a mortgage is the interest rate. Different lenders offer varying rates, which can be fixed or variable.
Fixed interest rates remain constant throughout the loan tenure, providing stability in monthly payments. While, variable rates can fluctuate based on market conditions, potentially leading to lower or higher payments over time. Comparing interest rates from multiple lenders will help you find the most favorable terms for your financial situation.
2.Loan Tenure
The loan tenure, or the length of time you must repay the mortgage, significantly impacts on your monthly payments and the total cost of the loan. Longer plans, such as 20 or 30 years, generally result in lower monthly payments but higher overall interest costs. And shorter plans, on the other hand, mean higher monthly payments but lower total interest paid.
Therefore, before you choose a mortgage, make sure you consider your long-term financial goals and choose a plan that is affordable and has a good interest rate.
3.Down Payment
The down payment is the initial amount you pay towards the purchase of the property, usually ranging from 10% to 30% of the property’s value. A higher down payment reduces the loan amount and, consequently, your monthly payments. The down payment you make to lenders potentially qualifies you for better interest rates. Assess your savings and determine a down payment that you can comfortably afford without depleting your emergency funds.
4. Fees and Charges
Mortgages come with various fees and charges that can add up quickly. These may include processing fees, legal fees, insurance premiums, and property valuation fees. It’s essential to be aware of all the associated costs to accurately estimate the total expense of your mortgage. Some lenders may offer lower interest rates but higher fees, so consider the overall cost rather than just the interest rate when comparing mortgage options.
5. Understand the terms of the contract
Understanding the repayment terms of your mortgage is very important. This will help you manage your finances. Some of the terms include the frequency of payments (monthly, quarterly, etc.), and any penalties for late payments or early repayment of the loan.
Therefore, ensure that the repayment schedule aligns with your income flow and financial commitments. Also check if the lender offers flexibility in case of financial difficulties, such as temporary payment holidays or loan restructuring options.
6. Lender Reputation
The reputation and reliability of the lender are critical factors to consider. Research potential lenders to ensure they have a good track record and positive customer reviews. A reputable lender will provide transparent information, excellent customer service, and support throughout the mortgage process. This step is very important, as it will help avoid potential issues in the future.
7. Affordability
Before committing to a mortgage, evaluate your overall financial stability. Consider your monthly income, expenses, existing debts, and other financial commitments to determine if you can comfortably afford the mortgage payments. You can make use of mortgage calculators. It estimates the monthly payments of a person and ensure they fit within budget.
Conclusion
When choosing a mortgage, it’s important to carry out the necessary due diligence and make informed decisions. The federal government is actively making plans to increase the availability of mortgages to people in Lagos. This potentially expands opportunities for prospective homeowners.
By staying informed of these developments and critically evaluating your financial options, you can make strategic decisions that align with your long-term objectives.
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