How to Choose the Right Mortgage for You
Buying a house is one of the most important decisions you will make in your life and it is likely to be accompanied by a mortgage loan, one of the largest financial obligations you acquire. Find out what are the main aspects that you should compare to choose which is the best mortgage loan.
Thinking of buying a house in Lagos or any other part of Nigeria? The best way to choose a loan tailored to your needs is to inform yourself and compare at least three options, even if you have access to government loans from institutions, we invite you to compare mortgage loans from other financial institutions taking into account factors:
The down payment percentage requested varies from one financial institution to another, compare and see which options best fit your budget. Take into account that the larger the down payment, the lower the amount that remains to be financed, which implies a smaller credit that generates less interest and, therefore, a lower total cost of ownership.
Amount of monthly payments and advance payments
Do not compare with a good eye, know well what your ability to pay is, determine it based on your budget so that it is as accurate as possible, and consider all your expenses and even a mattress for unforeseen events.
Even if you are willing to make sacrifices to buy the house of your dreams, we at Nairatalktoday, recommend that you do not allocate more than 30% of your monthly salary to the mortgage payment. The idea is that the sum of the monthly payments of all your debts (mortgage + credit cards + car loans + personal loans + other debts) is not more than 30% of your monthly income.
Advance monthly payments when you receive extra income can help you reduce the cost of credit and you can finish paying your credit earlier. You must clarify with each institution the terms for making advance payments, if there is a limit, penalties if the advance payment goes to capital (if so, the amount based on which interest is calculated is reduced) if you have to notify when you make the payment, etc.
Although the Federal Mortgage Bank of Nigeria has terms of up to 30 years, banks and other financial institutions offer usually lesser terms. It is in your best interest to choose the shortest term within your possibilities, although the monthly payment goes up, the interest is lower and in the end, the total of your payments will be smaller.
There are different types of interest rates, so the considerations go beyond the rate percentage. The rates that are usually handled are fixed, variable, or mixed.
When you acquire a long-term debt, the idea is that you know how much you will always pay, regardless of changes in the financial markets. You can only obtain this security with a fixed interest rate.
Variable rates can benefit or harm you, if there is an increase in the interest rate, the credit can become so expensive that it will be almost impossible to pay, so you must be aware of this possibility and decide if you are willing to take the risk.
The mixed rate, on the other hand, uses the fixed rate for a certain term and the variable rate for another, so for a time you will have the security of knowing how much you are going to pay with the fixed-rate, but for another, you must assume the risk of changes in the variable interest rate.
Other expenses of buying a house
You must not forget that in addition to the down payment of the mortgage loan other additional expenses are generated with the purchase of a house such as an appraisal, notary expenses, and commissions, among others, that are not always included in the credit.
When comparing mortgage loans, also check the amount or percentage of additional expenses and which of them are included in the loans you are comparing.
The total cost of the mortgage loan
On the one hand, review the Total Annual Cost, which includes, in addition to the interest rate, additional expenses directly related to the mortgage loan, such as commissions (for opening, administrative, advance payments, etc.) and other expenses such as insurance included ( life, disability, unemployment, housing).
Remember that the CAT only includes the expenses of the mortgage credit, it does not include notary expenses, taxes, appraisal, etc.
To compare different loans using the CAT, they must all be “the same”, that is, have the same term, the same down payment, the same amount of credit, the same type of rate (fixed, variable or mixed) and, of course, the same currency.
Although the CAT will give you an idea, it does not always determine which is the best mortgage loan, so it is also recommended to see the total cost of the loan (what you will end up paying in pesos). Ask for the amortization table where the monthly payments with interest and other additional expenses are broken down, add up and check how much you will have paid at the end.
Benefits and rewards
Some institutions may give you exclusive benefits if you are already their client, or simply to improve competition conditions, such as better rates or lower commissions. Some also offer rewards for paying on time.
You lose nothing by asking from the beginning because these benefits could considerably reduce the total cost of the credit.
Once they have given you the information, ask for a Binding Offer, this is a document that includes the terms of the credit that you have already been informed of, as well as the requirements. This document guarantees that the offer that the institution has just given you is valid for nothing less than 21 days so that you have time to continue informing yourself and comparing to choose the best mortgage loan.