What are mortgages?

A mortgage is a debt instrument, secured by the collateral of a specified real estate property that the borrower is obliged to pay back with a predetermined set of payments. Individuals and businesses wishing to make purchases of real estate without paying the entire value of the purchase up front use mortgages.

In residential mortgage, a homebuyer pledges his or her house to the borrowing bank. The bank then grants the homebuyer a loan backed by the property. The loan is usually payable over a long period and the bank has a claim on the house should the homebuyer default on paying his or mortgage. Mortgages have become more attractive to Ghanaian homebuyers given the improving macroeconomic environment, especially the downward drift of interest rates.

Mortgage Insurance
If you obtain a conventional loan, depending on your loan program and down payment amount, you may be required to buy private mortgage insurance (PMI). The insurance protects the lender in case you default on the loan, allowing the lender to approve a large loan amount.

Mortgage Insurance offers a variety of payment options, including making an initial payment at closing or making monthly payments with the house payment. You may even increase your interest rate and have the lender pay the insurance. Be sure to ask your lender to compare the benefits of the different plans.
When it comes to paying for a property, don’t be intimidated by the word “mortgage”. A mortgage is simply a loan made to help you finance a property. It indicates that a specific amount of money will be loaned at a specific interest rate for a specific period of time (the term of the loan). In addition, you agree to make timely payments throughout the life of the loan.
Here are the main mortgage options ones you should know about:

Conventional Mortgage.
A conventional mortgage is a loan to purchase property made between a lending institution and a borrower without a third-party participant, such as the FHA or VA. Most types of conventional loans are paid off over 15, 25, or 30 years.
Terms of a conventional loan vary among lenders, but basically a loan can be obtained even without a down payment. When the down payment is less than 20%, it is often necessary for the loan to have private mortgage insurance (PMI) to protect the lender. Private mortgage insurance (PMI) is insurance written by a private company that protects the lender from losses in the event the borrower defaults on the mortgage. Borrowers are required to pay the premium for private mortgage insurance. Private mortgage insurance limits a lender’s exposure to financial loss resulting from loan defaults.
Conventional mortgages can be conforming or non-conforming. The conforming loan limit, for 2006 is set at $417,000 for single-family homes ($625,500 in Alaska and Hawaii). Mortgage larger than this amount, or that have other features that put them outside Fannie Mae and Freddie Mac criteria, are called non-conforming or jumbo loans.
In addition, conventional mortgages can have a fixed rate or adjustable rate.

Fixed-Rate Mortgages
Fixed-rate mortgages give you the security of knowing your monthly principal and interest payment will not change over the life of the loan. This type of conventional mortgage also protects you from rising interest rates. No matter how high market interest rates go, your mortgage rate remains the same. Prosperity Mortgage offers a variety of fixed-rate products, with loan terms ranging from 10 to 30 years. Fixed-rate mortgages are best for people who:

• Prefer regular payments with no surprises
• Are on limited or fixed incomes
• Plan to stay in their property for long time
• Are buying a home at a time when interest rates are comparatively low

Adjustable Rate Mortgages
An adjustable-rate mortgage (ARM) has an interest rate that is fixed for the first one to 10 years and then adjusts periodically based on financial market conditions. During the initial fixed period, an ARM has a lower interest rate than a comparable fixed-rate mortgage, so you’ll save on your monthly payments during the early years of your loan term. Because this type of conventional mortgage offers lower upfront monthly payments, it can help you:

• Buy a more expensive property. Because your maximum loan amount is based on the initial monthly payments, you may be able to borrow more.
• Manage your cash flow in a high-rate environment. If you are buying a property at a time when interest rates are comparatively high, an ARM can help you avoid making high monthly payments right away.
• Plan for future income growth. An ARM can help you keep your payments low while your income increases during the loan’s fixed period.
• Potentially improve your credit standing. The lower initial rate can make your payments easier to manage, helping you improve your credit and expand your financing opportunities if you make timely payments on your mortgage loan and other credit obligations.
• Save money if you expect to move or refinance. If you plan to move or refinance before the end of the loan’s initial fixed period, you can take advantage of an ARM’s lower payments without worrying about future rate increases.

After the initial fixed-rate period, the remainder of the loan term is divided into adjustment periods of one year or six months, depending on the ARM product you choose. At the end of each adjustment period, the interest rate may change based on prevailing market conditions.

Financed Closing Costs
Many lenders today are willing to assist buyers with closing costs. In exchange for paying a slightly higher interest rate, a lender may build into the mortgage its charges plus pay other closing costs up to a specified amount. These plans vary widely, so study tem carefully.

Balloon Mortgage
A balloon mortgage is a loan that offers a low interest rate for a set period of time, typically 5, 7, or 10 years. At the end of that time period, the balance is due in full to the lender or refinanced by the borrower.

Browse our mortgage directive to locate financial institutions, which offer mortgage loans in Ghana.