A simple way to understand a mortgage is that it enables you to purchase a home without paying the total price upfront. Typically, mortgage lenders require borrowers to pay a 20% – 30% equity down payment to get a mortgage loan.
Before NMRC’s refinancing operations started in 2015, equity down payment requirements were sometimes as high as 50% – 60%, with short tenors of 3-5 years and interest rates of up to 25%.
However, NMRC’s mortgage refinancing operations have boosted the liquidity positions of mortgage and commercial banks, enabling them to offer housing loans with tenors of up to 20 years at significantly lower interest rates.
This implies that it is more affordable to own a home using a mortgage today than six years ago. A mortgage loan would enable you to get the benefits of a longer-term loan of 15-20-years from commercial and mortgage banks. Using a mortgage to purchase a home frees up your available income stream for other things.
Money is tough! So why pay all when you can pay part and spread the rest over a longer time?
Here are the top five reasons you should get a mortgage to own your home.
1. Early homeownership
A mortgage loan gives you a convenient path to early homeownership. You could be in your home a lot earlier with a mortgage loan if your income is decent and predictable.
You do not have to pay the entire house purchase price to own a home. With 30 percent equity payment and funds to pay for closing costs, you can move into your new with a mortgage and repay the rest 70 percent component of the house cost over 15-20 years.
2. A Mortgage Gives You Leverage
Leverage means using debt to increase the potential return on investment. A mortgage is an excellent example of leverage. In most cases, a 30% down payment (and a good credit history) would get you 100% of the house you want to live in. A 30% down payment means you are using 70% leverage.
Leverage works to your advantage when real estate values rise.
Consider this scenario: If you pay 30 percent equity (i.e. N6m) to buy a N20m home with a mortgage loan of N14m and the value of the home appreciates by 20%, the increase adds to your share of homeownership:
If the home appreciates by 30 percent, the property value becomes N26million. By extension, it increases your equity contribution by 30%, from N6million to N12million, meaning a 46% rise in your home equity value!
3. A Mortgage Gives you control and privacy
When you live in a rented home, you don’t have exclusive right to property access. This means that the landlord, or an employee of the landlord, may enter your home at any time.
A mortgage helps you own a home early, so you can enjoy the control and privacy that comes with living in your own home. You alone make the rules of entry. No-one has the right to enter without your permission. You can fix it the way you want without having to seek anyone’s approval. You own your private space.
4. A Mortgage Improves Your Credit Rating
A mortgage provides an opportunity to build a good credit score that you can leverage for future consumer credit—timely repayments on a loan position you as a creditworthy borrower with proven capacity.
As a measure of your ability to pay back debt, the credit rating improves and lowers your future cost of borrowing. Likewise, the credit rating as a measure of capacity could deteriorate if there is a default or failure to meet repayment terms, reducing your ability and increasing your cost of accessing credit.
5. Gives You Financial Room to Make other Investments
Think about this for a moment! If a once-in-a-lifetime business opportunity arises overnight, would you be able to take advantage of it if your money has gone to purchase a property without a mortgage?
However, with a mortgage, your monthly payments, which constitute a marginal percentage of your income, would allow you to set aside part of your income or build up disposable income for taking advantage of investment opportunities. A mortgage offers a convenient homeownership path, gives you room to build financial readiness to maximize your opportunities.