Taking Out A Mortgage in Ghana: 6 Things To Consider

Jul / 31 / 2021

Taking a mortgage to purchase a home is a major decision; one that can easily trap you into a cycle of never-ending payments deep into retirement or one that would leave you with a retirement of bliss and satisfaction. The million-dollar question is which path would your decision lead you. Let’s help put you off to a good start as we take you through navigating the not-so-small matter of mortgaging.

Before you take out any mortgage facility do not lose sight of these 6 considerations.

1. What type of mortgage loan do you want to take?

Are you taking the mortgage as a first-time home buyer, releasing equity in your current building to improve your liquidity position, or completing a building you are currently constructing? Do you need it to renovate or expand your building or want finance to construct a building? It is important to know the type of mortgage loan to go in for that best suits your purpose. Knowing the exact type of mortgage you need enables you to demand exactly what you need. Remember you do not need to be saddled with payments in the future which you could have avoided if you just took the right mortgage type.

2. Can the house plan be modified?

Particularly for families who seek to do further expansion or modification to the property for which they are planning to take a mortgage, take a look at the building drawings, and if you don’t have the expertise to, get a building professional on board to advise. Some properties may be paraded as expandable by real estate agents, but once you try to expand, you may realize that this is not necessarily the case or that a lot more work would be required to achieve it. It would normally lead to doing more extensive work than expected to make desired changes to your building. Is the house engineered properly to handle large volumes of water during the rainy season? In the case of a fire hazard, is the building properly designed with enough exit points if any? These additional enhancements could mean that you may have to sink money into fixing them while at the same time making payments to settle the mortgage.

3. What does the land title look like?

A survey conducted by mortgage lenders indicated that most housing and other landed property in Ghana are not properly registered and hence the transfer of land title becomes a bit of a nightmare for most property owners. For this reason, It is important to know what kind of title the land on which a building you want to purchase or build has. If it is your land, is the title absolute? Otherwise, if it is for a real estate company, do they hold full title to the land? If this is not done you may end up in the middle of a land dispute after acquiring a mortgage to purchase the property. It is also extremely critical to know the length of the lease in a case where the land is properly titled. You don’t want to end up spending a fortune on purchasing a house or putting up a building on land with a lease expiring in the next 5 or 10 years!

4. Is the mortgage rate adjustable or fixed?

Should you go for a fixed-rate or an adjustable (or a floating) mortgage rate? Fixed-rate mortgages are mortgages whose interest rates across the life of the mortgage remain the same as opposed to adjustable-rate mortgages whose rates can be adjusted through the life of the mortgage. Adjustable rates can be attractive because in most instances the advertised rate is set lower than a fixed rate, referred to as a "teaser rate". This is an artificially low rate that will get adjusted higher at the first adjustment opportunity. If you ever consider an adjustable rate, be sure to ask what the rate is based upon (often a current T-bill or LIBOR rate plus an additional amount); Get enough details to help you make an informed choice. You may also want to find out what the rate would be today if you already had the loan and it is adjusted to current levels. Finally, find out how low or high the rate can go from the present and how often the rate can be adjusted.

Here are three reasons to consider an adjustable-rate:

  1. If you can determine with all certainty that interest rates can't go above current levels

  2. The loan ceiling on the adjustable rate is below the current fixed rates

  3. You plan to sell your home before the first-rate adjustment

Be sure you fully understand each of these parameters and get them in writing. Note: if you can't afford the loan ceiling and the fully amortized payment at that level, don't accept the loan.

5. Your current and future income level

This is important because you will have to look at your possible amortization throughout the mortgage and ask yourself if you will be able to live comfortably as an individual and/or with your family. Would you have to make certain lifestyle changes to be able to make payments on time? Will it mean certain crucial activities will have to be stopped or it will only mean cutting off some of your luxurious habits? Would your current income or savings allow you to make a down payment without having to borrow more? Making a down payment higher than the required without borrowing helps to lessen the stress on your income throughout the repayment. It is suggested that if you make just the minimum payment, by the time you get to the end of the 2nd year you will be owing more than what the home is worth! Another suggestion is to save up enough money to make the down payment and the interest cost over the life of the mortgage upfront.

Always pay at least the full interest payment, and it's best to make a regular payment that includes both principal and interest. It has been found that preference for mortgages within low-income respondents is very low for obvious reasons, hence your current income level plays a significant consideration in one's choice to go for a mortgage.

6. Do you have legal advice or a lawyer?

Before you complete any mortgage transaction, get some legal advice. It is necessary to have good legal advice! Reading through the terms of a mortgage arrangement can be extremely tricky for people with no legal knowledge. Do not assume the bank or financial institution has your best interest at heart; even if they do, get the services of a legal expert to give you that comfort. There may be some implied clauses that could complicate things for you, so, make sure you have good legal advice. There may also be loopholes that you could exploit to gain more favorable terms and conditions but which would not be readily observable by someone with little or no legal knowledge. Items of particular note will be conditions attached to the time frame within which you are expected to make scheduled payments, the penalties, transaction fees, the method of interest calculation, the constituents of a shortfall or default as well as the insurance requirements.

Devtraco Plus has built expertise and experience in providing apartment houses and townhouses that will suit your style and needs. If you need a mortgage for any of our world-class luxury apartments, you can speak to any of our partner financial institutions or call us on 0270000004.

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