MORTGAGE

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Today, let’s talk about MORTGAGE!

What is a mortgage?

According to the Oxford Dictionary, a mortgage is a legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title to the debtor’s property, with the condition that the conveyance title becomes void up to the payment of the debt. In simple terms, a mortgage is a loan gotten from a lender (mostly banks) in order to purchase a home, renovate a home, for property under construction, or against the property of the applicant.

It is important to take note that every month has a set period of time where the applicant must pay back the loans in installments. However, if it is not repaid, the lender has the right to do as they please with the property. But if it is paid back, the mortgage ceases to exist.

NOTE: Mortgages allow people with limited access to banking services or not-so-good credit to get loans and purchase properties such as homes.

How do mortgages in Nigeria work?

A mortgage, like every other loan, comes with interest. And interest rates for mortgages in Nigeria range between 15% and 25% for commercial and mortgage banks and 7%–10% for the National Housing Fund (NHF). Also, apart from the interest, a potential mortgage applicant will need to have equity.

What is equity?

Equity is a certain percentage of the total amount needed for the property purchase. This ranges between 30% and 70% of the total cost of the property (home). It is important to take note that a mortgage comes with a duration for repayment known as tenure. This is the amount of time required to pay back the mortgage loan and is usually 20 years in Nigeria.

Types of Mortgage in Nigeria

There are different mortgage types. Each with its own interest rate, flexibility, or repayment structure. However, every applicant should consider the pros and cons of each mortgage type when applying for a mortgage loan.

  • Fixed-Rate Mortgage: This mortgage type has an unchanging interest rate that remains constant throughout the entire life of the loan.
  • Floating or Variable Mortgage: also known as Adjustable Rate Mortgage (ARM), is a type of mortgage in which lenders usually adjust the interest rate from time to time in line with the agreed index at the commencement of the loan.
  • Balloon Mortgage: This mortgage type requires the applicant to pay a lump sum at the end of the mortgage loan and requires interest-only installment payments.
  • Primary Mortgage Institutions in Nigeria

There are three main primary mortgage institutions in Nigeria where one can get a mortgage loan.

  1. Primary mortgage institutions (PMIs): there are specialized financial institutions whose primary function is to provide loans to people to purchase real estate.
  2. National Housing Fund (NHF): This is a scheme by the Nigerian Federal Government that gives Nigerians access to low-interest loans for the purpose of buying or developing a property.
  3. Commercial banks: banks act as mortgage facilitators, as almost every bank has a mortgage arm where its customers can access loans to purchase a property.

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