Hopeton Morrison, Contributor
"Mr. Morrison,
I SAW your article in the paper and was very interested in what you had to say. I am trying to buy a house but, like most Jamaicans, I don't have the correct information or the understanding of how to go about doing so, without finding myself in serious trouble.
"I have made some basic enquiries and have been given varying information. I am a contributor to the National Housing Trust. But what I want to know is: can I buy a house through the banks? Will they purchase the house for me and I pay a monthly mortgage to them? If yes, which ones?
Let me know, along with any other information. Thank you."
Dear Reader,
The National Housing Trust is perhaps your best bet for purchasing a home, as this institution offers the best rates ranging from as low as two to eight per cent on mortgages. No other institution offers rates this low. Then, you can supplement whatever the NHT offers with financing from one of four building societies - Victoria Mutual, Jamaica National, FirstCaribbean or Scotia Jamaica Building Society. There are other excellent options. Many of the 50 credit unions in Jamaica now offer excellent mortgage plans also.
And yes, the banks will also assist you in purchasing your home. But, mortgage plans are usually offered through the building society subsidiary of only two of those banks, Scotia Jamaica and FirstCaribbean.
Financial institutions don't purchase the home for you. They lend you the money to purchase your home and then charge you interest over time (10, 15, 20 or 25 years for example) to repay that money. You should really seek out the cheapest rates available.
Generally the NHT, building societies and credit unions will offer the best rates. The banks tend to offer straight consumer loans for a shorter period of time, which means that you have to find more of the money on a monthly basis and you might not be able to afford it.
PARI PASSU ARRANGEMENT
The NHT will lend up to two persons (using one title) $1,500,000 each or $3,000,000 total. What many persons do after that is to find another institution to finance the remainder of the loan. Some of the institutions enter into what is known as a pari passu arrangement with the NHT and actually lend you both its portion and the NHT's portion at one time.
Borrowing to purchase your home by way of mortgage is the method used by most persons, not only in Jamaica, but in many countries all over the world.
Some persons complain that mortgage financing is an inefficient use of funds, as interest payments could often finance another two or three houses similarly priced.
While that is true, there are two things to keep in mind. You are enjoying the use and benefit of your house for many years before you have paid off your mortgage. Your mortgage payments then are what economists call your opportunity cost.
Second, a monthly mortgage payment that is onerous at the start becomes a progressively smaller component of your monthly expenses over time, a function of the time value of money.
Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology. Please send comments and questions to: hmorrison@stccu.com.
Taken from The Sunday Gleaner, July 31, 2005
