Mortgage in Zimbabwe

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A mortgage is a loan from a bank or other financial institution that helps a borrower purchase a home. The collateral for the mortgage is the home itself, meaning that if the borrower doesn’t make monthly payments to the lender and defaults on the loan, the bank can sell the home and recoup its money.[1]

How does a mortgage work?

A mortgage consists of two primary elements: principal and interest.

The principal is the specific amount of money the homebuyer borrows from a lender to purchase a home. If you buy a $100,000 home, for instance, and borrow all $100,000 from a lender, that’s the principal owed. The interest is what the lender charges you to borrow that money. In other words, the interest is the cost you pay for borrowing the principal.

Borrowers pay a mortgage back at regular intervals, usually in the form of a monthly payment, which typically consists of both principal and interest charges. Depending on your mortgage agreement, your monthly payment may also include some of the following charges:

Property taxes

The lender may also collect the annual property taxes associated with the home as part of your monthly mortgage payment. In such cases, the money collected for taxes is held in an “escrow” account, which the lender will use to pay your property tax bill when taxes are due.

Homeowners insurance

Homeowners insurance provides you with protection in the event of a disaster, fire or other accident. In some cases, a lender will collect the premiums for your insurance as part of your monthly mortgage bill, place the money in escrow and make the payments to the insurance provider for you when policy premiums are due.

Mortgage insurance

Your monthly mortgage payment may also include a fee for what’s known as private mortgage insurance (PMI.) This is a type of insurance required by many conventional mortgage lenders when a buyer’s down payment is less than 20 percent of the home’s purchase price.

Types of mortgages in Zimbabwe

There are several types of mortgages available to consumers. Buying or selling real estate is likely one of the biggest sales or purchases the average person will ever make in their lifetime and it is not always an easy one at that.

"When making this decision it is very important to be well informed on the nitty-gritty involved and we would like to expand on different types of mortgage loans in this country, says Patience Munetsi-Patongamoyo, Seeff's MD in Zimbabwe.[2]

Fixed-rate mortgage

The name of a mortgage typically indicates the way interest accrues. In the case of a fixed-rate mortgage, for instance, the interest rate is agreed upon at the time you close on the purchase and stays the same for the entire term of the loan.

The interest rate for this mortgage is determined and locked in for the term of the mortgage. This is the main type of mortgage in the Zimbabwean market.

But no matter which term you prefer, the interest rate will not change for the life of the mortgage. For this reason, fixed-rate mortgages are good choices for those who prefer a stable monthly payment.

Conventional/Low ratio mortgages

This is a mortgage where the down payment is equal to 20% or more of the property`s purchase price. A low-ratio mortgage does not normally require mortgage protection.

High ratio mortgages

This is when the borrower is contributing less than 20% of the purchase price of the property as down payment. These mortgages must have mortgage default insurance.

Open mortgages

This mortgage allows the flexibility to repay the mortgage at any time without penalty. They usually have shorter terms, but can include some variable rate or longer terms as well.

Closed mortgages

A closed agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.



References

  1. Mia Taylor, [1], Bankrate, Published: 3 March, 2020, Accessed: 3 November, 2020
  2. Seeff Zimbabwe, [2], Seeff Properties Zimbabwe, Published: 26 September, 2019, Accessed: 3 November, 2020

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