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Getting a Mortgage? 5 Basic Rules to Follow

Owning a home in the present economic crisis is even now more challenging than ever. With interest rate in Nigeria as high as 21%, understanding how mortgage works is very crucial to avoiding difficulties due to reduced income or increased rates amongst other challenges.

Though there’s a lot to consider when contemplating purchasing a home with cash or obtaining financing via a mortgage, most people will prefer the former in order to eliminate debt and interest. However, in the absence of cash, what are the factors you must consider when going for a mortgage? But first let’s define what mortgage is:

In the most basic sense a mortgage is a loan to buy a property.  A mortgage loan, also referred to as a mortgage, is used by purchasers of real property to raise funds to buy real estate; by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is “secured” on the borrower’s property – Wikipedia

Understand Your Fixed Costs

Before you decide what and how to spend on a mortgage, it’s important to take stock of your habits and your true fixed costs. Having an idea of your fixed expenses will give an insight into what you need weekly, monthly or yearly. You should be honest with yourself when putting together your household budget. With this in place, you will also know what you can part with for your mortgage payments without cutting your neck.

Be PITH Safe

According to the Canadian Housing & Mortgage Corporation, your monthly housing costs should be less than 32% of your gross monthly income. These are considered your PITH or Principle and Interest (of your mortgage payments), Property Tax, and Heating bills.

Get a Mortgage You Can Afford

If you pass the PITH test, the second test of what you can afford mortgage. Your entire monthly debt load should be less than 40% of your gross monthly income.

Choose your amortization period Wisely

The longer your amortization period, the lower the mortgage payments.  However, the longer it takes you to pay back the mortgage principal to the lender, the more interest you will pay—which can affect your ability to save for other important things, such as retirement. So you will have to weigh your options and chose what’s best for you.

Picking the Right Interest Rate  

The interest rate at which you select to pay off your mortgage varies from “fixed”—whereby the rate will NOT change for the term of the mortgage, and is generally a bit higher but considered more stable, or “variable” whereby the interest rate can fluctuate with the current state of the market. Pick and negotiate wisely before you start. This is very important.

Finally, make sure you seek as much professional advice as you need before talking up mortgage.


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