₦airaland Forum

Guys I was wondering if its better to pay under a mortgage arrangement or get a piece of land and start developing it at my pace.

I think you should consider the interest rate on the mortgage first, what upfront payment you'd have to make, etc.

At an interest rate of 15% on a 30-year mortgage with no down payment, the home buyer/owner ends up paying a cumulative of about 4 - 5 times the net present value of the home. If you have your mortgage financier structure the mortgage repayment as an annuity, and the net present value of the loan/mortgage is say ‎₦10,000,000.00. At an interest rate of 15%, the buyer will have to pay about ‎₦1,500,000.00 annually. This amounts to about ‎₦45,000,000.00 in 30 years.

On the flip side, you will pay rent while you gradually build on your land and that is relatively a sunk cost. I think you should consider how much you pay on rent and match it with the annuity on the mortgage. If they are equal or almost equal (> or <), I think you should buy the house on mortgage and consider it rent you will have to pay for 10, 20 or 30yrs to own the property.

Analyst01:
I think you will have to consider the interest rate on the mortgage first, what upfront payment you'd have to make, etc.

At an interest rate of 15% on a 30-year mortgage with no upfront payment, the home buyer/owner ends up paying a cumulative of about 4.5-times the present cost of the home if he paid it off upfront. If we structure the mortgage repaying as an annuity, and the net present value of the loan/mortgage is say ‎₦10,000,000.00. At an interest rate of 15%, the buyer will have to pay about ‎₦1,500,000.00 annually. This amounts to about ‎₦45,000,000.00 in 30 years.

On the flip side, you will pay rent while you gradually build on your land and that is money lost. I think you should consider how much you pay on rent and match it with the annuity on the mortgage. If they are equal or almost equal (> or <, I think you should buy the mortgage and consider it rent you will have to pay for 10, 20 or 30yrs to own the property.

Thanks for the advise. My rent is 1.3 million per annum. The property is worth 26m with11m equity. Rest to be paid in 28 years with mortgage finance from mortgage bank. I considered using the 11m to buy a land and start gradually.

Snakedoctor1:
Thanks for the advise. My rent is 1.3 million per annum. The property is worth 26m with11m equity. Rest to be paid in 28 years with mortgage finance from mortgage bank. I considered using the 11m to buy a land and start gradually.

Glad my answer was useful.

Snakedoctor1:
Thanks for the advise. My rent is 1.3 million per annum. The property is worth 26m with11m equity. Rest to be paid in 28 years with mortgage finance from mortgage bank. I considered using the 11m to buy a land and start gradually.

You can knock down the principal overtime this will help you pay down the mortgage in good time. People who commit to this always knock off their mortgage in 5-7 years depending on the amount the commit overtime.

For every N1 you put into knocking down the principal you save N3. So ensure that the mortgage offering gives you that option.

The advantage of building at your pace is the ability to build to pace and taste. The most important thing of all is to ensure you get a good deal and don't sell yourself cheap. Ensure that the property is in a location with prospects so that if you change your mind tomorrow you can easily dispose of it.