Thursday, April 26, 2018

BANKING TIPS: How to choose the best mortgage loan

Kelvin Mkwawa

Kelvin Mkwawa 

By Kelvin Mkwawa

Buying a house for most people is the biggest financial purchase of their lives.

When you get a mortgage loan, you are in for a long haul because mortgage loan repayment periods are usually for 10, 15, 20 or 30 years so the mortgage loan is the most important financial and complicated decision you can ever make.

Thus, it is imperative to consider your financial situation and all available options. There are more choices for mortgage lenders now than ever before. According to the last Tanzania Mortgage Market Update of December 31st, 2017, we have 31 mortgage lenders in the country. One of the most complicated decisions you will likely make concerning your home mortgage will be which lender to choose. In this article, I will discuss the steps in choosing the best mortgage loan, and hence the mortgage lender.

Evaluate your financial situation

Before you even consider your mortgage loan options, evaluate your financial situation and needs. After the self-evaluation, you will have an idea what terms you need in your mortgage loan that fit your unique needs. For example, how much can you afford? And for how long? Can you afford the monthly repayment of the mortgage loan which depends on the value of the house you want to buy? Also, do you have the down payment needed which is based on the price of the house? You will be able to answer all those questions after you evaluate your current financial situation.

Consider loan options

Once you have a clear picture of the amount of the mortgage loan that you can afford, then the next step is to look at what kind of mortgage loan is best for you. There are three main factors to consider when comparing loan options: the tenure, interest rate, and interest rate type.

i. Typically, the mortgage loan tenure varies between 10-30 years; this indicates how long you have to pay off the loan. The longer the tenure the lower the monthly repayment amount but the higher the interest charges over the life of the loan.

ii. The average interest rate in the market charged on mortgages by available lenders is between 15 and 23 per cent. The market is very competitive so through research and due diligence, you will be able to get the best and affordable interest rate.

iii. There are two basic interest rate types for mortgage loans; fixed and adjustable (variable) interest rate. Adjustable rates are normally lower but carry higher risks; they fluctuate due to their dependence on the macroeconomic environment, hence your mortgage payments may fluctuate as well. On the other hand, fixed interest rates remain the same regardless of any external or internal factors and your mortgage payments will not change over the course period of your loan. In our market, most of the interest rates offered by mortgage lenders are variable rates which means more risk to borrowers. I believe it is now time for mortgage lenders to start offering fixed interest rates to mitigate the interest risk and encourage more lending.

Understand loan costs and fees

After you have evaluated your financial needs and know what type of loan you need; the next step is to start shopping for lenders. The best way to start shopping for mortgage lenders is through friends and families and ask for their recommendations. Through them, you will be able to get the details (fees, interest rates, tenures, percentage of down payments) of mortgage loans from different banks and start physically visit those banks for comparison. The total cost of your mortgage loan depends on this so take your time to shop around.

In conclusion, to choose a mortgage loan is a complicated decision and choosing the best mortgage isn’t as simple as picking the lender with lowest interest rate. With that being said, its best to evaluate your financial situation to know exactly what you can afford and research as many options as possible that are available before selecting the lender that will suit your unique housing loan needs.