There are a lot of misconceptions and frankly false information out there pertaining to the process of acquiring a mortgage in Nigeria even in this 21st century. It’s time to debunk these misconceptions and arm you with proper, factual and relevant information you need to seamlessly navigate the property market with informed decision-making. This article will serve to deconstruct these myths not just helping you save time and money but also to make smarter choices, avoid pitfalls and get the best value for your money.
What is a Mortgage?
A major driver of the nebulous conversation around buying a property in Nigeria is that we don’t understand what a mortgage is. A mortgage is a type of property purchase arrangement that is facilitated by a loan. The buyer/loanee agrees to pay the borrower over a period of time, typically in a regular series of payments that include principal and interest. The subject property is used to collateralize the loan. This means that the lender has the right to take ownership of the property in the event of default by the borrower in a process known as foreclosure.
The major components of a mortgage loan are as follows:
Principal:
The original amount of the loan, i.e. the value the property would be worth were paid in lump sum on the day of purchase by the borrower.
Interest:
The cost the principal is borrowed at. Usually expressed as a percentage of the principal.
Term:
Also known as Duration, the length of time, often expressed in and divided by months or years, the borrower has to fully repay the mortgage
Deposit:
Also known as Down Payment: The initial sum the borrower has to pay as a fraction of the total amount of the loan facility to purchase the property.
Amortization:
The process of gradually paying a mortgage in set amounts at set intervals. Each payment consists of a periodic interest payment and a fraction of the principal and is made at regular intervals until the entire sum is offset by the borrower.
Collateral:
Also known as Security, this refers to an asset that the borrower pledges to secure the loan in the event of default. This means that where the borrower fails to properly amortize the loan, the lender may take ownership of the said asset, in this case, the property to be mortgaged.
As an investor and a property market enthusiast myself, I find that fully understanding these terminologies and how they apply in mortgage is crucial to unlocking the full potential of real estate opportunities. Now, what are these myths about mortgages?
Myth 1: Mortgage is Only for the Wealthy
No. Mortgage is NOT only for the wealthy. Apart from the aphorism that demands that you “do what the rich man does”to get rich, it’s just commonsense that a vehicle that allows you pay for an asset in bits but take possession of it from the get go is not only for the wealthy, who can afford to pay it all off from the get go. Mortgage by definition caters to a wide range of pockets. Many financial institutions in Nigeria offer different mortgage plans to suit different markets, ensuring that as much as possible, all classes of aspiring property owners are reached.
Myth 2: Mortgage is Unobtainable in Nigeria
Another common misconception is that prospective buyers must have the full purchase price at hand before making a property purchase. As is clear by now, mortgages are some of the ways by which we can avoid exactly that. Now, not only are mortgages ubiquitous in Nigeria, they also come in different shapes and sizes. It’s a real fruit market out there, and you actually require a concrete grasp of your property goals to not be spoiled for choice.
Don’t know where to start? Try Mixta Africa. They offer not just a plethora of mortgage options but also the expertise to navigate through the entire process which starts with picking the right one for your property needs.
Myth 3: Mortgages are Too Complicated
While it’s true that the mortgage process usually involves some intricacies, especially at the agreement stage, they are quite easy to navigate with the right tools. Obtaining the right understanding of some of the mortgage terminologies such as I’ve used above definitely helps. Many financial institutions also offer financial advisors that can help you navigate the process and attend to your enquiries. When in doubt, it’s advisable to seek legal advice. But starting out with the full conviction that getting a mortgage is NOT rocket science is one surefire way to achieve it.
Myth 4: Banks Alone Provide Mortgage
Only deposit money banks provide mortgages – LIE! The truth is that a lot of other types of financial institutions provide mortgage services including but not limited to mortgage banks, cooperative societies, microfinance banks, and even some real estate agencies. Requirements, terms and conditions, offerings and benefits may differ, but the same is true even with the commercial banks and you may find some facilities offered by these non-traditional sources more suited to your mortgage needs than those offered by the commercial banks themselves. It’s essential that you diversify your search. Explore various options and find the ones that best suit your needs.
Myth 5: Interest Rates on Mortgages are Really Steep
It is common to find Nigerians shying away from the conversation around mortgages due to the erroneous belief that they are prohibitively expensive. Yes, interest rates in Nigeria may be higher than in other countries, but they are not altogether unbearable – it is counterintuitive to the lenders and the market to make it so. Mortgage rates vary by lender, property, economic environment and type. Many financial institutions offer competitive rates and other perks like flexible payment plans that make mortgage payments easy and affordable. Which is why it’s vital to explore different mortgage options before making a decision. Your ability to negotiate a good deal for yourself can also come in very handy here.
Myth 6: Only Nigerians can get a Mortgage in Nigeria
Frankly, Nigerians have access to a wider range of mortgage options in Nigeria but with the right information and under the right conditions, there’s nothing really stopping a foreigner from obtaining a mortgage in Nigeria. Many financial institutions will readily offer mortgage options to expatriates and foreign investors provided certain conditions are met. Some of these may be valid identification, relevant permits, proof of adequate income and evidence of tangible assets or investment in the country. Endeavor to consult with relevant financial institutions and regulatory authorities to better understand the specific criteria you need to fulfil.
Mixta Africa is a seasoned real estate outfit that offers a variety of tailor made mortgage solutions for both citizens and non-citizens, making property investment easy to access.
Myth 7: Once You Have a Mortgage, You’re Stuck with It
It’s a common belief that upon taking out a mortgage, a buyer is stuck with it until the expiration of its term. The truth though, is that there’s a lot of leeway for refinancing and renegotiation should your financial status or market uncertainties affect your amortization process. Refinancing allows you to take advantage of future reduction in interest rates and better terms. Also, some lenders offer interest waivers and penalty waivers as the situation demands. Subject to the lender’s approval, you can buy out of a mortgage via a buyer assumption. Buyer assumption means the transfer of an existing mortgage to a new buyer, including the remaining balance, interest rates and existing terms. Some lenders include a due-on-sale clause in their contract offers so it is important to carefully review your agreements with expert help where possible before entering into them.
Conclusion
Having conducted a thorough exposition on these myths, it’s time for a final word. Understanding the truths about mortgages can expose to you a whole new world of possibilities in real estate investing and property ownership. Whether you’re a foreigner or a local, a seasoned investor or a first time prospector, proper understanding of what mortgage entails can be a veritable tool to help you achieve your real estate aspirations.
As an experienced investor with a solid repertoire in the property market, I can confidently advise you; do not let any of these myths hold you back. Take the pains to conduct proper research and make the right decisions. Feel free to reach out if you have any questions or are in need of proper guidance. Partner with Mixta Africa to find the right solution that addresses your specific needs and helps you achieve your strategic goal in mortgaging and property investment.
Author’s Note: Hi, I’m Joy – a seasoned finance professional based in Lekki, Lagos. I balance a fulfilling career with successful real estate investments in Nigeria. Join me as I share insights on navigating the world of real estate investments in Nigeria. Let’s find your dream home and unlock financial success together!
