How Much Does it Cost to Process a Mortgage in Nigeria?

Owning a home is a major milestone for many Nigerians, and for most, securing a mortgage is the best way to achieve this dream.

However, understanding the financial commitment involved in processing a mortgage is essential to avoid unexpected costs.

From down payments and interest rates to legal fees and insurance costs, this blog post will provide a detailed breakdown of the costs associated with obtaining a mortgage in Nigeria.

By the end, you’ll have a clearer picture of what to expect and how to plan effectively for your mortgage journey.

Key Costs Involved in Mortgage Processing

a. Down Payment

The down payment is one of the most significant upfront costs when securing a mortgage. It is the portion of the home’s price that the buyer must pay out of pocket before the bank or mortgage institution covers the rest through a loan.

In Nigeria, most mortgage lenders require a down payment of 20% to 30% of the property’s purchase price.
Government-backed mortgages, such as those from the Federal Mortgage Bank of Nigeria (FMBN), may have lower down payment requirements compared to commercial banks.
The exact percentage depends on the lender, the borrower’s financial profile, and the type of property being purchased.

b. Interest Rates

Interest rates significantly impact the total cost of a mortgage. Nigerian mortgage interest rates vary depending on the lender and the market conditions.

Federal Mortgage Bank of Nigeria (FMBN) loans under the National Housing Fund (NHF) scheme offer interest rates of 6% per annum.
Commercial banks and private mortgage institutions typically offer interest rates ranging from 15% to 25% per annum.
The loan tenure also affects the total interest paid; longer repayment periods result in higher total interest costs.
Interest rates depend on inflation, CBN regulations, and the borrower’s creditworthiness.

c. Legal and Processing Fees

Legal and administrative fees cover the cost of drafting, verifying, and registering mortgage documents. These costs vary depending on the bank or financial institution.

Loan application fees range from ₦50,000 to ₦200,000.
Legal fees for document preparation may cost between ₦100,000 and ₦500,000.
Administrative or processing fees range from 0.5% to 1.5% of the loan amount.

d. Property Valuation Fees

Before a mortgage is approved, lenders require a property valuation to determine its actual market value.

The valuation process is carried out by professional property valuers.
The cost of valuation depends on the property’s location and size but typically ranges between ₦50,000 and ₦300,000.
Some lenders have accredited valuation firms, while others allow borrowers to use independent valuers.

e. Insurance Costs

To mitigate risks, lenders require borrowers to take out specific insurance policies:

Mortgage Protection Insurance: Protects the lender in case of the borrower’s death or permanent disability. This costs about 0.5% to 1% of the loan amount annually.
Homeowner’s Insurance: Covers property damage and varies depending on the insurer and property value. It typically costs around ₦50,000 to ₦200,000 per year.

f. Stamp Duty and Government Charges

Stamp duty and government-related fees apply when transferring property ownership and securing mortgage documentation.

Stamp duty is usually 1.5% of the property’s cost.
Property registration fees vary by state but can range from ₦100,000 to ₦500,000.
The cost of obtaining a Certificate of Occupancy (C of O) varies but is usually between ₦200,000 and ₦2,000,000, depending on the state.

g. Other Hidden Fees

Aside from the more obvious costs, borrowers should be aware of additional charges that might arise:

Loan Management Fees: Some lenders charge between 0.5% and 1% of the loan amount annually as an account management fee.
Early Repayment Penalties: If you choose to pay off your mortgage earlier than agreed, some lenders impose penalties ranging from 5% to 10% of the remaining balance.
Late Payment Fees: If a mortgage payment is missed or delayed, penalties can add up quickly.

Read This: House Flipping in Nigeria: Buying, Renovating & Selling

Comparing Mortgage Costs Across Different Lenders

There are different mortgage providers in Nigeria, each with varying costs:

Federal Mortgage Bank of Nigeria (FMBN):
- Offers affordable interest rates (6%) for NHF contributors.
- Requires lower down payments (10%-30%).
- Longer loan tenures (up to 30 years).
Commercial Banks (e.g., GTBank, Access Bank, Zenith Bank):
- Higher interest rates (15%-25%).
- More stringent credit requirements.
- Shorter loan tenures (10-20 years).
Primary Mortgage Banks (e.g., Abbey Mortgage Bank, Platinum Mortgage Bank):
- Offer specialized home financing packages.
- Interest rates vary between 10% and 22%.
- More flexible repayment options than commercial banks.

Tips for Reducing Mortgage Processing Costs

While mortgage costs can be high, there are ways to reduce expenses:

a. Choose the Right Lender

Compare mortgage offers from different financial institutions.
Consider government-backed loans for lower interest rates.
Research any additional charges before committing.

b. Negotiate Better Interest Rates and Fees

Maintain a strong credit history to qualify for better rates.
Negotiate processing fees and other administrative charges.
Opt for a shorter loan tenure if you can afford higher monthly payments.

c. Explore Government-Backed Mortgage Options

The NHF Scheme offers loans with lower interest rates and extended repayment periods.
Some state governments offer housing loan schemes for civil servants.

d. Save for a Larger Down Payment

A larger down payment reduces the loan amount and interest paid over time.
Aim for at least 30% of the property price to lower your financial burden.

e. Plan for Hidden Costs

Budget for property valuation, insurance, and legal fees in advance.
Check for early repayment penalties before committing.

Read This: How to Buy a House and Renovate It on a Budget

Conclusion

Processing a mortgage in Nigeria involves multiple costs, including down payments, interest rates, legal fees, insurance, and government charges. The total cost varies based on the lender and the specific loan terms.

To minimize mortgage expenses, borrowers should compare different lenders, negotiate terms, and explore government-backed mortgage programs.

Proper planning and research can make homeownership more affordable and achievable.

Before taking a mortgage, ensure you fully understand all costs involved and prepare adequately for the financial commitment.

By doing so, you can make a more informed decision and secure a home loan that suits your budget and needs.