HOW TO CHOOSE THE BEST MORTGAGE LENDER

By Kelvin Mkwawa, Seasoned Banker.

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 between 10 to 30 years. A mortgage loan is the most important financial and complicated decision one can ever make and that is why it is imperative to consider your financial situation and all available options. There are more choices of mortgage lenders now in Tanzania than ever before.

According to Tanzania Mortgage Market Update of December 31st, 2018, the total mortgage portfolio balances amongst banks stood at TZS 421.10 billion as at the end of the year of 2018 representing 4,996 properties compared to TZS 344.84 billion outstanding balance for financing 4,174 properties that were reported for the previous year. This signifies an annual increase of 22.04% in Mortgage Finance market while the number of mortgages increased by 18.76% from 2017. One of the most complicated decisions one will likely make concerning home mortgage will be which lender to choose. In this article, I will discuss the steps in choosing the best mortgage lender:

• Evaluation Of Financial Situation: Before considering the mortgage loan options, one should evaluate his/her financial needs and situation. After the self-evaluation, he/she will have an idea which terms fit his/her 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? In addition, do you have the down payment needed which is based on the price of the house? One will only be able to answer all those questions after the evaluation of his/her current financial situation.

• Consider Loan Options: After the evaluation of the current financial situation, the next step is to look at what kind of mortgage loan is best from the pool of mortgage lenders. There are three main factors to consider when choosing the mortgage loan options: the tenure, interest rate, and interest rate type. 

1. Typically, the mortgage loan tenure varies between 10-30 years; this indicates how long the borrower has 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. 
2. The average interest rate in the market charged on mortgages by available lenders is between 15-24%. The housing market is very competitive so through comprehensive research, the borrower can get the best and affordable interest rate.
3. 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. The fluctuation of interest rate will cause the mortgage monthly repayments to fluctuate as well. On the other hand, fixed interest rates remain the same regardless of any external or internal factors and the 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: The next and last 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, one 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 the mortgage loan depends on this exercise so take all the time necessary to shop around. 

In conclusion, to choose a mortgage loan is a complicated decision and choosing the best one is not easy. Following the steps I have shared throughout the article will help you towards making a decision of choosing the best mortgage lender per your unique housing needs.

Written by Kelvin Mkwawa, MBA
Seasoned Banker
Email address: Kelvin.e.mkwawa@gmail.com