Debunking 5 Common Myths About Mortgages

A mortgage is a type of loan used to purchase a property. If you meet certain criteria which include; having a regular source of income, having a down payment as well as being able to prove that you will be able to make the regular payments that come with a mortgage; you should be able to qualify for a mortgage from a financial institution. Unfortunately, mortgage penetration is still relatively low in Sub-Saharan Africa with an estimated 5% of adults qualifying for a mortgage in 2020. There are many reasons for this, however, one major reason is a deep misunderstanding of what a mortgage is and how they work.

I am going to attempt to take the 5 most common questions and misconceptions people tend to have about them and provide more correct answers for you.

Myth 1: It’s almost impossible to qualify for a mortgage so there’s no need even to bother applying

You are not completely wrong, not just in Africa, but across the world, the mortgage application and qualification process can be very long and intense and can sometimes take anything from 30 -180 days. Financial institutions will usually want to evaluate you thoroughly to ensure you meet all their requirements before they issue you the loan.

In West Africa, the average qualification rate is around 5–8%. But, indications are that things are beginning to change with the rise of tech platforms built to ease the mortgage application and qualification process. They will typically hold your hands through the process and allow you to manage the entire process from the comfort of your phone.

H28 is one such platform. We don’t just help you with the application process, we enable you to save towards a downpayment, as well as other things you will need to qualify for the mortgage. We will also help you with the downpayment under certain circumstances and provide you with exclusive deals on the homes so you are paying less on average if you go through us.

Check us out here

Myth 2: You are not the real owner of the home till you have paid off the mortgage

This is just wrong. When you buy your home with a mortgage, the home has 2 owners. You and the mortgage provider. Each time you make a payment you technically buy some of the equity from the provider until you buy all the equity and become the sole owner of the home. If for any reason you sell the home before you finish paying it off, you will still split the proceeds of the sale with the mortgage company according to the current equity split of the property.

Remember that it is in the best interest of the mortgage company for you to own a sizeable piece of the home because it incentivizes you to look after the property well, and your feeling of ownership will also spur you to keep making the payments on the property.

Myth 3: The bank is just waiting for you to miss one or two payments so they can swoop in and kick you out and take over your home

This is another very prevalent misconception that stops people from applying for mortgages and other types of home loans. First and foremost, yes, the bank has a right to step in if it’s beginning to look like you are unable to keep up with your payments, however, this is the last resort that is only exercised in very extreme circumstances.

There are laws protecting you from being arbitrarily kicked out of your home and any bank seeking to repossess the home will spend nothing less than 6 months in court before they know if they are even able to do it as West African countries tend to have laws that are more favourable to the occupiers than you can find elsewhere. Secondly, and this might be news to you but the bank is seriously hoping they never have to step in because that represents a failure for their evaluation process. The bank is in the business of giving loans and making money from people’s repayment of those loans, not selling homes.

Think about this, to take your home, they need to spend 6 months in court, pay to get you out of the house, renovate the place and then try to sell it in a very saturated market all to maybe recover the money they lent you in the first place. Simply put, it’s more trouble than it’s worth. If you begin to have trouble paying back the loan, most banks will be open to renegotiating the terms of the loan with you to ensure they keep it performing. Life is full of ups and downs and banks are made up of human beings who understand this very clearly.

Myth 4: Mortgages are for people who are already wealthy

This is not true. An average home in West Africa costs $25,000 to buy while some homes can cost way over $150,000 How many people have that just lying around? and even if you did, any financial advisor worth his salt would tell you to take a reasonably priced home loan and invest the rest into a revenue-generating entity that you can use to pay off the loan over time.

Depending on your financial profile, a mortgage enables you to buy your dream home as long as you have between 5–25% of the price of the home. So a mortgage is actually an equalizer, creating access to home ownership, something that was previously only available to a small portion of the population.

Myth 5: Renting is cheaper than buying a home

If you look at the bare figures alone, this appears to be true. However, when you dig a bit deeper you find that the situation is a bit more complicated. When you pay rent, you are paying for the right to occupy a property for a given period and that’s all. Once your time is up, you are required to leave regardless of any improvements you may have made to the property.

In contrast, each time you make a payment on your mortgage, you are buying more equity in your home which if you know anything about real estate is an appreciating asset. So essentially each mortgage payment is both “rent” and investment at the same time. Your home can also help you build wealth as it can serve as a security when you need an emergency infusion of cash into a business opportunity.

One of the major causes of the wealth disparity between black and white Americans can be traced back to easy access to home loans that were granted to white Americans in the early 40s — 60s, giving them a headstart and a huge advantage over other Americans. A benefit to

their descendants which the 3rd and 4th generations still enjoy till this day.

Mortgage penetration in West Africa is relatively low compared to other parts of Africa and the world and some of these misconceptions are a major reason for this. A mortgage can help you move into the home of your dreams while you build generational wealth.

Reach out to H28 to talk about how we can help you get started on your mortgage journey