MORTGAGE FINANCE:
Before You Say I Do ...Cont'd
If you build the house with your sweat, tears and blood, you swim or sink with the house, even if the neighborhood becomes area boys infested, crime rate is sky high and traffic is a torture, you dig and and pray for the best, because you have the mentality that the house you built with your sweat, tears and blood is an inheritance for future generations, and must never be sold under any circumstance.
However, with mortgage, it does not always have a fairy tale ending. Things can go wrong, sometimes horribly wrong.
If for whatever reason, you cannot continue paying your mortgage, the bank will reposses the house and sell it off to recoup their investment. They will not return whatever equity you have earned so far. If by the time of this event, you own 70% of the house for example, after sale by the bank, you get 0%. End of story
Secondly, property prices does not always go up. In mature economies, the real estate market responds to the economy. In the US presently, it's economy is in dire straits due to the Gulf War misadventure. Some states are litered with house for sale signs with no buyers in sight.
If you take a N100M mortgage on your house, and the value falls to N60M, you will continue to pay until you liquidate the N100M mortgage although the house is not worth N60M. The Nigerian economy is becoming more sophisticated, and pretty soonm property prices will start responding to the economy, if it has not done so already. When that happens, you cannot always bank on property prices always going up. You can get your fingers badly burnt.
Thirdly, for most people, mortgage is a major expense. It takes a huge chunk out of their pay check. The tendency is that by the time you finish paying mortgage, settle your bills and housekeeping expenses, there is hardly anything left over for investment. Also since with mortgage, you can upgrade your house at will, most folks end up spending their whole working lives paying mortgage, as they live in one dream house after the other.
Without a solid investment base, you are naked when you retire, and the fine houses you lived in will not put food on the table then, or settle your bills.
A home is not an investment. I takes away money from your pocket on a yearly basis. In the US, there are people who lose their houses for inability to pay property taxes (our version of tenement rate). Some people had to move to smaller houses, to lower their tax burden.
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