Understanding Mortgage Financing in Nigeria
According to recent statistics and reports, the housing deficit in the country stands at over 17 million. Despite this huge housing deficit, the mortgage sector has not been able to meet up with the needs of Nigerians. Although there have been several improvements in the housing sector in recent years, most Nigerians have still not been able to access home loans. The likely reasons for low access to mortgage in Nigeria is not far-fetched. Majority are ignorant on the subject of mortgage, others are afraid of debt while many lack the knowledge and the skills needed to access home loans in Nigeria.
This article is intended to create a better understanding of mortgages and hopefully, encourage more Nigerians to benefit from it.
What is a mortgage?
A mortgage is a legal agreement that conveys conditional right of ownership of a property (typically landed) by its owner to a lender as security for a loan. In simple terms, a mortgage is an agreement that allows you to borrow money from a bank or similar organization, especially in order to buy a house, or the amount of money itself.
Purchasing a home just by private funding from savings can be a herculean task that may take forever to accomplish. What a mortgage does is that it reverses the system. So, instead of saving for 20 years to finally be able to afford a home, a mortgage can help you purchase the home, and then pay gradually over a period of that same 20 years.
Who is eligible?
The National Housing Fund (NHF), a Federal Government scheme, entitles all Nigerians above the age of 21 years in paid employment to a low interest, government funded loan. Members of the scheme contribute 2.5% of their monthly salary to the fund through Federal Mortgage Bank of Nigeria.
In the first quarter of 2018, the Central Bank of Nigeria (CBN) pegged the maximum mortgage loan for home seekers in the informal sector under the Nigerian Housing Finance Programme (NHFP) at ₦50 million. What this means is that, self-employed Nigerians under the micro, small and medium sized enterprises are eligible to borrow mortgage loans to purchase a single family home or an apartment in a multi-unit building.
How Does it work?
Mortgages are also loans which mean that they come with interest rates. A typical mortgage interest rates in Nigeria range between 7-10% for the NHF and between 15-25% for commercial mortgage institutions.
Aside from the interest payable, as a potential buyer you must also have a certain percentage of the total amount needed for the purchase readily available; this amount is known as equity and should range between 30-70% of the total cost of the home.
Another important factor to consider is the tenure of the loan; this is the length of time required to pay back the loan. In most situations in Nigeria, the maximum amount of time given is 20 years.
When approaching any mortgage institution for a loan, the most important factor they will consider before approving your request is your income. Ideally, mortgage payments should not take more than 25-30% of your monthly income, this ensures that you still have enough to be able to take care of other responsibilities and hence, do not default on your loan payments. The mortgage institution will request for a comprehensive statement of account of 12 months or more.
Sources of mortgage in Nigeria
Mortgages can be accessed from primarily three sources in Nigeria;
- Primary Mortgage institutions (PMI’s) carry out activities meant to provide Nigerians with access to home loans. These institutions usually have mortgages or saving and loans in their names.
- The Federal Mortgage Bank of Nigeria and National Housing Fund which are federal programmes meant to give Nigerians access to cheap long-term funds for the purpose of buying or developing a property. The NHF is a federal programme that provides contributors who meet its requirement with up to ₦25m for buying or developing a property. These funds are best accessed through the PMIs.
- Commercial mortgage facilitators. Almost every bank has a mortgage arm from which clients can obtain a loan for property purchase.
Each mortgage type has its own interest rate and flexibility or repayment structure. As a borrower, before you proceed with filing any mortgage loan application, you should consider your options properly – weighing the pros and cons of each mortgage type.
Fixed rate mortgages have a constant interest rate that remains unchanged throughout the entire life of the loan. These mortgages usually come in 10, 15 or 30 years and are predictable.
Floating or variable mortgages are otherwise known as Adjustable Rate Mortgage (ARM). Lenders can adjust the interest rate from time to time in line with the agreed index at the commencement of the loan.
Balloon mortgages operates like the fixed mortgage rate only that the monthly payments are lower because of a lump payment at the end of the loan. Here, what is being paid monthly is the interest rate.
In Nigeria, a lot of people are still very skeptical about taking home mortgages; however, this is one of the surest and easiest ways of owning your own home. We advise that you sit down and do a proper analysis of your financials to see if a mortgage can be in the works for you.