Mortgages, the power of buying on credit: a luxury I wish Nigerians could have and appreciate

Are mortgages are good even if you have the cash to pay in full? If yes, can they also be a bad financial decision in some situations? I’ll simplify all of this & more in this thread

The first thing you need to know about getting mortgages is that your credit score affects the interest rate you would be given for a mortgage. If you have a good credit score and you negotiate really well, eg by shopping around banks to find the best rates & using the good deals

you have to leverage other banks into offering you good rates etc., you could get as low as a 2%-3% per annum (p.a.) 15/30-year fixed-rate mortgage or a flexible mortgage rate.
 
There are so many types of people that get mortgages. People assume that everyone who gets a mortgage

cannot afford to pay for the house they live in full in cash but in reality, that's not always the case. There are
 
1. People that can't afford to pay for the property fully in cash and
2. People that can afford to pay for the property fully in cash but understand the value of

credit and using leverage to build wealth etc.
 
1. The people that can't afford to pay for the property cash in full. Think of the current model of house ownership in Nigeria, you either buy or build a home. If you want to build a home for yourself, what do you do? While you are

staying in your rented home, you set money aside every month to build your home. So every year, you're paying for housing expense at least twice between the cost of building your home and house rent. What does getting a mortgage do for you? Instead of paying for housing in 2

separate places, you have 1 single payment that you make to the bank every month for your own home. You find a home you like, you make a down payment of 20% or less of the house's current value and arrange a 30 or 15-year payment plan with the bank and pay. And you don't have to

wait till the 15/30-year period you agreed with the bank. If you start earning more and you want to pay the mortgage down earlier, you can increase your monthly payments and pay it off quicker. If you win a lottery or make a ton of money somewhere along the way, you can pay off

the mortgage in full if you'd like. What the mortgage does for you if you don't have the money to buy a house for cash is, instead of burning the candle on both ends, paying rent and building/saving for a home which can take years, why not buy the house you want to live in with

the bank's money and pay for it like you are paying for rent. It's just like saving towards your home or paying to build your house without rent.
2. People that can afford to pay for the property fully in cash. It is widely believed that such people don't exist. That as soon as

people can afford to pay for a home in full, they just drop cash and move in. People go as far as thinking, even if it means going broke to pay for the home in full, that makes more sense than getting a mortgage. The reality is, people that understand their finances or those that

hire good wealth managers to manage their finances know that getting a mortgage is better than tying down all your money in a property. Because real estate is quite illiquid, that is, it is quite difficult to convert it to cash. Think of it, how can you convert real estate to

sell it, rent it out or then use the home as collateral to get a loan. How easy is it to find buyers for the exact amount you are looking to sell? Or find & manage good tenants? Option 3, that's basically what a mortgage is. If you spend a decade plus to save up to buy/build your

house only to use it as collateral to get a loan, wouldn't it have saved you all those years' worth of rent if you could just get the house earlier & make the loan repayments? Yes it would have. "Rich people", even some of your rich Hollywood celebrities take mortgages for their

multimillion-dollar houses because as explained earlier, it often does not make financial sense to tie up those large amounts in a single property when they can use a small percentage of the cost of the house as down payment then invest the rest in their craft/business or other

profitable options. Eg. as I said earlier, if you have a good credit score, you could get as low as a 2%-3% per annum (p.a.) 15/30-year fixed-rate mortgage. The S&P 500, over the last almost 100 years has yielded an average annual return of 10%. If you invest all the money that's

not in the house in just that, you will make enough money to pay the annual payments with profit.
 
Paying down a mortgage is often cheaper than paying rent (if you have a good credit score) for a few reasons:
Many landlords don't already own their homes outright, so they are

likely still paying down a mortgage. Landlords typically charge you at mortgage plus their profit. But the question of credit score comes here. If your landlord's credit score isn't great, they could transfer that to you in high rent. But if your landlord's credit score is really

good, you could get that apartment at a cheaper rate than if you had gone to get a mortgage for it yourself.
 
Then you have to think of the net cost of a mortgage. When you pay your rent, you are paying for a place to stay for that time. When you pay a mortgage, you are paying

for a place to stay and getting more ownership to the home, and after a certain percentage, if the mortgager is unable to make payments, the house cannot be repossessed

Also, how do you benefit from the rise in value of a home? You do this through 2 ways: selling it or borrowing

against the house's current market value. Like we said, selling it is quite difficult and borrowing against it is as good as getting a mortgage in the first place. But, if you already have a mortgage for the house you live in and the value of the home goes up significantly, you

could go to another bank or the same bank to give you a loan for the current value of the house, you use that loan and pay for the current mortgage you are on and then keep the profit.
 
Does this mean you should get a mortgage as soon as you go abroad? Not necessarily. If you

don't plan to settle down in that country or earn from that country in the long run, then a mortgage may not be for you. Or if you have a bad credit score or have no credit history, then the rate you could get for a mortgage may not be too favorable. In that case, you are better

off renting and using the time to build your credit score with the money you have.
 
If you plan to stay in that home/city for a year and move to another home, it does not make sense to buy a home/get a mortgage

This is one reason why some US statistics show that millennials are

buying fewer homes than their parents did at their age. In the millennial generation and the older set of Gen Zs, moving for work is more common. People rarely stay in the same company or city for more than 5 years. White-collar skilled professionals often move jobs and are open

to taking jobs in other cities, countries or even continents. Because among several reasons, moving to a different company has proven to grow pay at a significantly higher rate than getting promoted within the same company. And if you are one of those who are open to taking jobs

in other places, except you plan to rent out the home and manage tenants/hire an agent to manage tenants or refinancing the home, then getting a mortgage might not be a great idea.
 
Imagine getting a mortgage in the US and having a great job opening in China or Germany? It'd be

quite worrisome even if you plan to keep the home and rent it out. Because aside from getting income from the property, you still have to worry about taxes. Property taxes and taxes on the income (profit) you make from the property

There are reasons why a mortgage is not a great

idea, but those reasons are never really because paying in cash is good when you have a good credit score. Remember debt on its own is neither good nor bad. It is what you use the debt for that makes it so. If you use debt to save yourself money in the future or earn more money,

then it's good debt but if the debt is costing you money at negligible financial and non-financial benefit, then it's bad debt
 
The credit system in Nigeria is not as developed as other nations. There's very little FinTech can do to solve this. There are structural elements that

need to exist before setting up credit facilities can be possible. Plus, the earning capacity needs to be more cemented. A more rigid minimum wage and more job security would need to be established.

We can't just entrepreneur our way into a good credit system where people can build wealth with credit and I fear this affects our general perception of credit. I hope this thread helped you see the benefits of a mortgage though