FEATURES OF THE HOME PURCHASE MORTGAGE 

A personal mortgage enables people  who want to buy or build their dream home and pay back their loan over a long term. To help you achieve this important life ambition most financial institutions in Ghana, offer various home loan solutions to thier  customers. A mortgage is basically a loan from a financial institution secured with property collateral. Lets try to understand the word 'mortgage'. It has its origin from the Latin word 'mortus', which means dead. The later part 'gage' also has its origin from the old french,  which means pledge. So basically , he who enters into a mortgage agreement , promises to pay off the loan before he or she dies. In view of this , most financial institutions will tell you, you must finish paying your loan before your 60th birthday.

Does the Ghanaian economy, enable more people in the working class to afford a mortgage? Interest rates on mortgages in Ghana average 30.6%[2] Annual Percentage Rate (APR) for cedi loans with dollar-indexed loans at 13%[3] per annum excluding other administrative and statutory charges.It is envisage that, default rate for mortgage repayment with the vaious financial institution will increase; due to the recent decline of the cedis against the dollor. There are soo many factors which makes it very difficult, to afford a mortgage in Ghana and Africa at large. Notwithstanding the availability of mortgage products, less than 15% of African urban households can afford or access a mortgage loan[1]

Typically mortgage terms in Ghana span between 10-20 years, which is very short; compared to other parts of the world. In Ghana, most finanacial institution will require minimum of 20% down payment for a mortgage facility. Looking at a typical scenario, if you want to purchase a house value GHS 85,000. You should take into account the following ; 

  • A minimum down payment of GH¢17,000 would be required
  • A maximum loan amount of GH¢ 68,000 would be granted
  • A monthly debt service of around GH¢ 1,823 would be charged (including interest)

Considering the example above,  you can qualify for such a lump as mortgage if you earn a minimum montly net income around GH¢4,600. [4] From this example, you know your faith if you can quailify for a mortgage in Ghana.  

OUTRIGHT  PURCHASE OR SAVING TO BUILD AT YOUR OWN PACE

So there are some school of thoughts, who thinks mortgage in Ghana is a total-rip off.  Most people would like to buy a plot of land and build at thier own pace. The major challenge  here in  this option, has to do with the risk involve in land acquisition. People have taken thier time to do all the necessary due diligence, yet they lost thier land. Increasing cases of 'land guards' in Accra especially, doesn't even motivate people to aquire land and build. Due to the risk involved in land acquistion, real estate developers makes adjustment; as a value added for selling secured litigation free properties to individuals. So if you are thinking of an outright purchase, you must take into consideration property values in the country. Furthermore, one major problem saving to build at your own pace is structural intergrity challenges. There more you keep uncompleted building exposed to hash weather , over time will results in hair line cracks in the building. 

Either of the two options discussed, has its own merits and demerit.

However, paying two years rent in advance and having the headache  of a permanent abode  of your own is greate challenge. All things being equal, monthly rental payment could be used for repayment of mortgage facility. So from the example above, assuming I am to pay GH¢ 1,823, (GH¢ 43,752 - two years in advance ), for a 3 bedroom house as rent. That same amount (GH¢ 1,823)  amount could have been used to service repayment,  eliminate the headache of a permanent place of your own. 

Let us know what you think . Are you preparing for a mortgage or outright purchase ? visit our facebook page and let us know your stand.

By: Kwame Kankam Adom

      (Real Estate Consultant)  

Disclaimer: The view expressed in this article is solely the views of the authors and not in any way reflect the views of the organisation they work for or may be affiliated to.