• Friday, March 29, 2024
businessday logo

BusinessDay

What you need to consider before taking mortgage

What you need to consider before taking mortgage

Are you hunting for your dream home, and you are short of cash? You might need a mortgage to make that dream of becoming a homeowner a reality.

Cost of housing is expensive in Nigeria particularly in urban areas like Lagos, and many Nigerians lack the financial capacity to make outright payment to purchase a home.

A mortgage, coined from a law French term, is a loan obtained from a bank or lender to help you finance the purchase of a home.  The bank or mortgage lender loan you a sum, typically 80 percent of the price of home, which you must repay with interest over a specified time period.

The home is used as collateral, and if you fail to pay back the loan, the lender can take over the home through a legal process.

Key factors like knowing which type of loan works for you and how a down payment affects your monthly mortgage payment can help you narrow things down.

In as much as mortgage makes home ownership pretty, prospective homeowners need to “count their cost first” before taking a mortgage loan.

Before you decide to take a mortgage, you need to ask yourself these important questions:

  • Do I want to buy or build a house?
  • Do I really need a mortgage?
  • What kind of property do I have in mind?
  • Can I pay back?
  • Am I comfortable with the interest rate?

Once you have answered those questions, you need to factor in the following before approaching the bank for a mortgage.

  • Am I mentally ready for a mortgage?

Funding a project is as important as the project itself. It can be very challenging for some people, causing them sleepless nights as they think of how to fund the project at hand. Raising funds to buy a property is no different.

You can decide to raise the money personally, or better still, secure a mortgage. Loan must be repaid at a certain time period, and this scares people. But loan might just be what you need to lift you to the next level.

  • Do I have a steady income source?

Lenders require a steady source of income to qualify for mortgage. However, self-employed applicants may have a harder time qualifying for mortgage as many lenders see irregular income as higher risk.

  • Can I payback?

You need to sincerely evaluate your capacity to repay as you would be required to provide proof.  Interest on mortgage is as high as 21 percent in Nigeria. You also need to put this into consideration.

Problem will inevitably arise if you can’t repay your debt. It will suffice to project, if you run a business, how much you can make after the loan has been secured and put into use. This should be based on concrete evidence.  For the employed persons, how much do I earn? Can I pay in instalments and still live comfortably.

  • What about market swing?

Assuming you acquired mortgage worth N30 million with 20 percent down payment. This implies that you owe the bank N24 million minus interest and other fees.

If the market experiences a downturn and the value of the home dip 30 percent, a big problem arises as the home now worth N20 million but you still owe the lender N24 million.

The sad news is that if you need quick cash and need to sell the home, you might lose a huge sum. However, this is the possibility, so get ready for it.

  • Am I prepared for extra charges?

There will be some fees you might be required to pay before your mortgage is approved. Such charges include insurance fees, appraisal fees, development levy. You have to factor this in your plan.

  • What if the worst happens?

This sounds somehow pessimistic but it is a possibility. If you cannot repay the debt, and you lose something else you had listed as collateral, can you recover? If you are sure you can’t, it is advisable to leave out the loan.