Navigating the Mortgage Market in Ghana

Some people can purchase properties outright with their savings, but most have to secure mortgages in order to buy. Mortgages are loans used in acquiring real estate, where the property being acquired is used as collateral. In Ghana, mortgages can be acquired from banks and other financial institutions.

An interest rate is the amount of money paid on the loan or the cost of the loan. There are two main types of interest rates: fixed and variable. The type of interest rate of the mortgage facility is left to the individual to choose.

Types of Mortgages

Three main mortgage types exist in Ghana: the Self-Build Mortgage (SBM), the Home Purchase Mortgage (HPM), and the Home Completion Mortgage (HCM).

The Self-Build Mortgage (SBM) is the loan to apply for if you are interested in building your own home. For most of the SBMs, the money for each stage is usually only paid out once it has been completed and a valuator has visited the site.

There is also an option of The Home Purchase Mortgage (HPM) which is designed purposely for people who intend to buy a house. The borrower is made to pay a minimum 15% deposit, with the remainder of the loan payment spread between 15-20 years.

Home Completion Mortgage (HCM) is a type of loan designed for people who already started the building process but stopped along the way due to financial problems. The uncompleted house could have initially been funded by the owner’s own money, his employer, bank or another mortgage company.

From the list above, you can then determine the type of mortgage you require. Once this is done, you would need to submit a completed application form. Depending on the bank, you can do this online, or download, print, then scan and email a completed form. Alternatively, you can submit an application in person at a banking premises. You will also need to decide whether you want to file an application by yourself, or jointly with two or more related people.

Documents required to apply for a mortgage include:

Two Proof-of-Address Forms
Proof of Income
Two Forms of Personal Identification
Recent Banking Statements
Credit Reports
Offer Letter
Letter of Intent
Facility Letter
Professional Appraisal
Final mortgage agreement, signed and witnessed, which may be done through Power of Attorney
Fixed Interest Rate

As the name implies, the interest on the rate of the mortgage does not change over its lifetime. Fixed rates are a good choice if you believe interest rates are likely to increase. Even when they increase, the rate of the loan will remain steady.

Variable Interest Rate

With this type of interest rate, the monthly payment may rise and fall over time with the inflation rate. This could be a good option if you believe the interest rate will head downwards, since repayments are reduced as the rate falls. However, if interest rates start to rise again, your monthly repayment shall rise accordingly. It is important to stay educated on the rate of inflation and research how this has fluctuated in recent years before making your decision.

Current Trends

Mortgage interest rates in Ghana are exceptionally high. In comparison to the United States where the fixed mortgage interest rate runs at 3.87% (as of 4 June 2015), the same product in Ghana can run upwards of 12%. Oftentimes, many banks offer base rates between 25-30%, depending on creditworthiness. Institutions that offer these services, among others, include Ecobank Ghana, SG-SSB, CAL Bank, HFC Bank Ghana, and Ecobank Transnational. With a rapidly depreciating cedi, a central bank money market interest rate that hovers around 25%, and an inflation rate of roughly 16% (as of April 2015), Ghana’s macroeconomic climate is generally unfavorable to consumers seeking capital. Typically, mortgages are pegged to the US dollar, meaning that as the cedi depreciates relative to American currency, the cost of repaying the mortgage increases. As a result, lenders often worry about their clients risk of default, in turn setting interest rates high, moving in the same direction as the nationally established rate.

With mortgages in Ghana, repayment includes the interest and that is deducted from the individual’s earnings each month. Specialists advise buyers to stretch the repayment period to avoid feeling burdened. That said, mortgages have a maximum shelf life of 20 years, meaning that the payment period is somewhat constrained. Furthermore, mortgages are unavailable to senior citizens older than 65, the national retirement age, so any remaining loan payments must be made before then.

Despite this situation, buying property in Accra remains an attractive investment opportunity. The country faces a property deficit, which some experts estimate is nearly two million units, meaning that for those who can buy in spite of high mortgage interest rates, property will retain value at a premium and could generate high long-run returns. Ultimately, while interest rates in the mortgage market might hinder buyers with limited financial resources, these risks are outweighed by the long-run rewards investment in Accra’s property present.

Source : house.jumia.com.gh