What you should know about mortgages

I’m sure at one time or the other, you have come across the word mortgage and have a general idea of what it means. However, we learn everyday and this article could just open your eyes to new realities about a topic you’ve always thought you have no business with. Remember, no knowledge is wasted.

For some people, their only connection with the word ‘mortgage is when it is mentioned in a foreign movie they watched. As common as the word is in the vocabulary of countries abroad, it is still an alien concept for many in Nigeria yet, adequate and affordable housing is a major issue within the country; one that requires dire attention.

Lots of people never consider the option of mortgage when they think of building their house because they either have no idea it exists or what it entails. It is therefore paramount that people become more informed and knowledgeable about the subject.

A mortgage is a legal agreement or document through which a bank, building society, etc. (creditor) lends money to the buyer of a property (debtor) at interest in exchange for taking title of the debtor’s property, with the condition that the transference of title becomes annulled upon the payment of the debt.

It can also be defined as a legal document by which the buyer of a property conveys to a creditor the property as security on a loan.

Basically, mortgages are used by individuals and businesses to carry out huge purchases in real estate without paying the total value of the purchase up front. Usually, the buyer makes an upfront deposit towards the property.

Although some lenders do not need the buyer to put down a deposit and are willing to pay the total worth, within the Nigerian Mortgage industry, that is not usually the case.

Most lenders expect you to make a commitment towards the property you want to get by making an upfront payment while they loan you the rest.

The concept of mortgage comes in when the borrower pays back the loan over a period of many years with interest until he or she is eventually able to own the property free from all debt.

In the case where the debtor defaults on the agreement and stops paying the mortgage, the creditor can foreclose. When foreclosure happens, the bank can evict the tenants of the property and sell using the income realized from the sale to clear the mortgage debt.

Usually, a mortgage comes with a mortgage note which is a legal document that offers a mortgage as proof of a debt and describes the terms under which the mortgage is to be repaid. It is a written promise to repay a mortgage loan plus interest and is usually referred to as a promissory note because the borrower promises to repay the debt.

It also sets out the terms of the transaction by stating the amount of the debt, the mortgage due date, the rate of interest, the amount of monthly payments, whether the lender needs monthly payments to build a tax and insurance reserve, whether the loan may be paid back with bigger or more regular payments without a prepayment penalty, and whether inability to make a payment or selling the property will warrant the lender to call the entire debt due.

The borrower signing the note, and any cosigners, are personally liable for repayment of the debt and may require producing the mortgage note as evidence to the true owners of the debt during foreclosure proceedings.

Before you settle for a mortgage however, weigh your options and find know exactly which type of mortgage works for you.

Debo Adejana

MD/CEO, Realty Point Ltd.

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