The other day I got an invitation to guest lecture, specifically on mortgages. I am yet to accept the invitation as lecturing isn’t really my forte; pen to paper? Now that’s me, I can do it with my eyes closed. Then again, with those eyes closed I could see a couple of students, those with enquiring minds throwing several questions at me - this may be fun after all. Maybe I should just accept, after all, the questioning may provide a welcome opportunity to delve deeper.
What is a mortgage?
Well let’s start with a light trivia first. I am pretty sure you have heard a few people complain about ceaseless mortgage payments, the root of the word may actually provide a bit more insight. The word mortgage/mort-gage originated from two Old French words, being ‘mort’ and ‘gage’. In Old French, ‘mort’ means dead and ‘gage’ means pledge. In essence, Mortgage was seen as a pledge to the death, where you either never finish paying or you pay up and retire your debt. The jury is still out on whether it is prudent to take out a mortgage or not, but that is a subject for another day (I promise on my honour). Today however we give you a glimpse of the requirements and guidelines when accessing a mortgage. So now, back to the matter, what is a mortgage in our Y2K times?
Where to start?
Mortgage is a lending system that allows you to pay a fraction of a home’s cost (called the down payment) upfront, while a bank or private lending institution loans you the rest of the money. You don’t technically own the house, it’s really a fancy long term lease that transfers to you upon completion of payment of the loan owed the lending institute. To break it down, you see a house or property you are interested in, but you don’t have upfront cash to pay in full, so you approach the owner or vendor who agrees a price and gives you a facility letter. You as a prospective owner proposes to the finance house or bank that you will use the property as collateral to obtain a loan to pay for the property. That’s it. See, it’s not that complex - you are the one giving the property hence called the mortgagor and the finance house or bank receiving the property as collateral is called the mortgagee. So finding a property is where you start. What next?
Pre-qualification and Application Process
Many people tend to think that once you offer some property to be used as security, it should be enough to secure a mortgage – not so fast. To access a mortgage, an appraisal of the mortgagor’s financial and social situation is accessed closely with his repayment capability the priority factor, so mortgages are assessed against a steady income stream and not ability to provide the property as security. Another critical consideration is to check if monthly repayments fall with the debt income ratio (DIR). What this simply means is that, the total monthly deduction from your monthly income should not exceed 40%. This informs how much of an amount you can access as a higher income give room for higher monthly repayments hence higher loan amounts. Isn’t it thus curious that in Ghana average income earners of GHS3,000 – GHS5,000 can access an average $30,000 loan amounts? Somebody is thinking how can we afford to buy houses right? I promise again, another topic for another day.
The sticking point here is that, once you can prove receipt of a steady stream of income either in a white collar job or as self-employed you can access some mortgage to the level of which your salary allows you to. Not to forget, mortgages in some countries can be given for a term of 30 years, but in Ghana, Cedi mortgage are given up to 20 years whilst Dollar mortgages are usually given up to 15 years. Yes, yes, I know the boy on the corner will ask, why these x number of years? Well, it is generally assumed that, you will be earning income with in your active working life, which is usually up to 60 years. In some special circumstances however, exceptions are made for professionals up to 65 years. So, now that you have qualified for a mortgage and the bank has issued you a facility letter, what is there to expect?
You didn’t think I was going to serve you all the big bowl of fufu in one day, did you? I am saving the big meat for next week. Until then, feel free to contact me with any other questions or guidelines you may need.
The writer is the Executive director of Yecham Property Consult
& Founder of Ghana Green Building Summit.
Linkedin: Cyril Nii Ayitey Tetteh