The Ultimate Guide to Types of Mortgage Loans in Nigeria

It is no longer news that housing is one of man’s basic necessities, and owning a house in Nigeria is somewhat seen as a great feat. For many Nigerians, mortgages offer the only practical way to turn this dream into reality.

Hence, understanding how mortgages work and the various mortgage options available is crucial in making informed decisions. This guide thus offers a comprehensive overview of mortgages and the types of mortgage loans in Nigeria. With the aim of helping you understand how to use the available mortgage options.

Understanding Mortgages in Nigeria

A mortgage loan, in simple terms, is a loan taken to purchase a home, plot of land or other real estate. It is a loan that is either secured by the property to be purchased or other properties.

In a typical mortgage arrangement, the customer provides a portion of the property cost as equity or down payment, while the mortgage loan covers the remaining balance.

In Nigeria, mortgages are offered by various institutions, including commercial banks, primary mortgage banks (PMBs), and government-backed entities like the Federal Mortgage Bank of Nigeria (FMBN).

Types of Mortgage Loans in Nigeria

1. Fixed-Rate Mortgages

A fixed-rate mortgage maintains the same interest rate throughout the loan term, ensuring consistent monthly payments. This predictability makes budgeting easier for homeowners. However, fixed rates may be higher than initial rates on adjustable loans.

2. Adjustable-Rate Mortgages (ARMs)

ARMs have interest rates that can change periodically based on market conditions. They often start with lower rates than fixed-rate mortgages but carry the risk of increasing payments over time.

3. Federal Mortgage Bank of Nigeria (FMBN) Loans

FMBN offers several mortgage products aimed at increasing homeownership among Nigerians:

• National Housing Fund (NHF) Loans: Designed for Nigerian workers contributing to the NHF, these loans offer low-interest rates and extended repayment periods based on the customer’s age.
• Home Renovation Loans: For existing homeowners needing funds to renovate or improve their properties.
• Construction Loans: Provided to individuals or developers constructing new homes, with disbursements made in stages as construction progresses.

4. Commercial Mortgage Loans

These are loans offered by the commercial banks and mortgage institutions with shorter tenures and slightly higher interest rates than those seen from FMBN

5. Joint Mortgages

Joint mortgages involve two or more individuals—often spouses or business partners—combining their incomes to qualify for a larger loan amount. This arrangement can make homeownership more accessible, but it requires clear agreements on ownership and repayment responsibilities.

6. Construction Mortgages

These loans are used to finance the building of a property. It differs from the type of mortgage which is used to purchase an already built property. With a detailed building plan and bill of quantity (BOQ), funds are disbursed in stages as work progresses in this type of mortgage

Key Considerations When Choosing a Mortgage

• Interest Rates: Compare rates across different lenders to find the most favourable terms.
• Repayment Terms: Consider the loan tenure and monthly payment amounts to ensure they align with your financial capacity.
• Equity Contribution: Making available 10-30% equity/down payment on the property to be acquired.
• Loan Type: Choose based on your income level, property type and your long-term goal
• Eligibility Criteria: Understand the requirements, including income levels, credit history, and necessary documentation.
• Additional Costs: Be aware of other expenses such as processing fees, insurance, and legal charges.
• Documentation Requirement: Ensure you meet all documentation required of the facility like provision of registered title on the property etc.
• Insurance Requirement: Many lenders require mortgage protection insurance (MPI), Fire and Special Peril Insurance

Steps to Secure a Mortgage in Nigeria

1. Assess Your Financial Capacity/Creditworthiness: Evaluate your income, expenses, employment status and savings to determine your ability to repay a loan based on all economic circumstances.
2. Research and choose a suitable lender: Explore various mortgage providers, comparing their products, terms and conditions, interest rate and repayment options
3. Identify the property to be purchased: Ensure the property has a valid title document and it is registered in the name of the seller.
4. Prepare Documentation: Gather necessary documents, including proof of income, identification, and property details, etc.
5. Complete and submit loan application: Provide the various proof of income and financial statements/documents, means of identification, property documents, passport photographs, guarantor forms, letter of employment or business registration, etc.
6. Property Valuation and Legal checks: Lenders conduct both valuation and checks on the property to assess open market value and forced sales values as well as the authenticity of the title document and the absence of encumbrances.
7. Loan Approval and Offer Letter: After careful review by the lender, if approved, the customer will receive a loan offer letter which will state clearly the amount approved, interest rate, tenure, repayment terms and other terms and conditions
8. Acceptance and Documentation: This involves the signing of the offer letter by the customer as well as the execution of a legal mortgage agreement on the property.
9. Disbursement: Funds are either paid directly to the seller or disbursed in stages for construction projects.

Conclusion

Navigating the mortgage landscape in Nigeria requires careful consideration and informed decision-making. By understanding the various mortgage options and aligning them with your financial goals, you can take confident steps toward homeownership. Do consult with our relationship managers at Jubilee Life Mortgage Bank Plc today for help in finding the mortgage solution that best suits your needs.