Refinancing your Home Loan in Nigeria

Ever heard the term “refinancing?” Ever wondered what it means and how it’s beneficial to your home loan? Refinancing your home loan is a technical concept that individuals and families employ to change an existing mortgage plan.

Refinancing your home loan may give you some leverage on your Estimated Monthly Installment and the term of your repayment. However, it can also be a little complex and requires thorough consideration before getting into it. 

Let’s consider what refinancing is, how it works, how to refinance home loan in Nigeria, and other details on the subject. 

The Ultimate Concept of Home Loan Refinance in Nigeria

Refinancing your home loan means trading your current mortgage for a new one. It’s not an addition to the old loan, but a replacement for it. 

This is how refinancing works: let’s say you just acquired a property in Lekki using a home loan (also known as a mortgage). Ideally, your creditor settles the cost of the property and you are tasked with repaying your creditor over a period of years until you have covered the principal loan plus interest, right? Now, if you refinance this loan, it means you’re getting a fresh loan—either from the same creditor or another one—to pay the balance due on the initial loan. You are then tasked with repaying the new creditor over a period of years. So you see, you’re not left with two loans; just one loan and one monthly payment.

Also read: Best Loan Apps with Low Interest Rate in Nigeria

When to Consider Refinancing Your Home Loan

You may wonder why you would want to refinance. Why would you take out a new loan to replace an existing one? Here are some instances when people usually consider refinancing their home loan: 

• Perhaps your current Estimated Monthly Installment (EMI) is high; it’s straining your finances. A good way to resolve this is to refinance your home loan. You can take a longer-term loan to replace the current one so that deductions are made in smaller bits per month and over a longer period. 
• When the cost of a mortgage is considerably lower than when you purchased the house, refinancing your home is smart, saving you interest rate costs. If your credit score has increased, you may also get a lower interest rate on a new loan, as creditors often consider a customer’s creditworthiness before stipulating an interest rate. However, ensure that the closing cost of the new mortgage is not equivalent to the interest you would have paid on the existing loan. 
• People often refinance to switch from a floating interest rate to a fixed interest rate loan, providing financial stability.

The Pros and Cons You Face When You Refinance Home Loan in Nigeria

Refinancing can be beneficial, but it can also come with some challenges. Let’s explore some of the common advantages and disadvantages of home loan refinance in Nigeria. 

S/N	Pros	Cons
1.	You can secure a lower Annual Percentage Rate on a new home loan.	If the closing cost of the new home loan is high, you may spend the same amount you would have spent to settle interest on the old loan, thus saving you no cost in the long run.
2.	Refinancing your home is a good way to lower your monthly payment if you find out that what you are currently paying on loan is straining your finances	With lower monthly payments, you spend longer term to repay your debt.
3.	If you are uncertain of being able to afford the rest of the loan repayment in the time remaining, you can refinance as a way of extending your repayment term.	Although interest rates drop when you are on a longer repayment plan, the accumulated amount paid on interest may be higher in the long run, compared to a short-term repayment plan.
4.	Refinancing gives room to channel your finances into other necessities	Refinancing a home loan could negatively affect your credit score and creditworthiness.

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How to Refinance Home Loan in Nigeria

The journey to refinance home loan in Nigeria is almost the same as taking out a new mortgage. It is paperwork-intensive and time-consuming. One also needs to think critically about the available options before signing an offer. If possible, involve the services of a property lawyer to guide your decision with expertise. 

With our financial expertise, we have created a step-by-step guide on how to apply for a home loan refinance in Nigeria: 

Step 1: Set a Clear Goal

Several banks and other financial institutions allow customers to refinance home loan in Nigeria. The service provider you choose will largely depend on your refinancing goal. So, ask yourself what your goal is. Would you like to tap into your property’s equity? Shorten your repayment term? Or lengthen your repayment term? Decide on your goal and outline the institutions that offer what you need. This streamlines your options and guides you towards a clear decision. Some financial institutions that offer home loan refinance in Nigeria are: 

• The United Bank of Africa
• Standard Chartered Bank of Nigeria

Step 2: Go Rate-shopping

Compare the rates of the institutions you have outlined. Keep an eye on closing costs and other service fees. Ensure your closing costs are lower than what you would have expended on interest on the old loan. 

For instance, if the closing cost to refinance your home loan totals N300,000 and you save N30,000 per month because the new loan has a lower interest rate, it would take you less than a year to make back the N300,000 spent on closing costs. Which is a good deal. But if it would take a longer time to break even from the closing costs, you probably haven’t saved anything at all; rather, you channelled the money into closing costs rather than the interest rate. 

Step 3: Prepare Your Documents 

The documents required to refinance home loan in Nigeria vary based on your service provider. However, here are the general requirements that most providers would request: 

• A bank statement detailing your transactions over the past 6 months. Some banks may request that it date as far back as 12 months. 
• A copy of your employment letter, your office identification card, and an introduction letter from your boss. 
• A letter granting irrevocable access to your salary account until the loan has been fully repaid. 
• Copies of title documents for the property, with ownership in the seller’s name.
• A copy of your birth certificate as proof of age

Step 4: Close the Deal

Conclude your application and finalise the deal. You may need to visit the bank branch to do this, depending on your service provider. This is also where you pay closing costs.

The Nigerian Mortgage Refinance Company 

The Nigerian Mortgage Refinance Company is a financial institution licensed by the Central Bank of Nigeria on February 18, 2015. Its main purpose is to ease access to funds for institutions that grant home loans in Nigeria. The Nigerian Mortgage Refinance Company promotes the availability of housing to Nigerians by increasing liquidity in the mortgage market and access to mortgage funds. 

“Our key role is mortgage refinancing. We do this by raising long-term funds from the capital market to refinance conforming mortgage portfolios of mortgage and commercial banks in Nigeria.”

Since its inception, the company has partnered with the Central Bank of Nigeria, the Real Estate Developers Association of Nigeria, the Mortgage Banking Association of Nigeria, and other institutions to break the barriers to homeownership for Nigerians. 

Although the Nigerian Mortgage Refinance Company does not deal directly with individuals, you can still benefit from the scheme. You can ask your mortgage institution if your home loan qualifies for refinancing from the Nigerian Mortgage Refinance Company. If it does, your loan repayment term can increase to up to twenty (20) years while cutting down on your Equated Monthly Installment. 

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Frequently Asked Questions 

What Does it Mean to Refinance Home Loan?

Refinancing your home loan is a system by which you replace an old home loan with a new one; usually with a lower interest rate. The new loan clears off the balance on your initial home loan, and you begin to pay off the new loan over a period of months or years. You can refinance a home loan in Nigeria from your initial creditor or from a new one. 

Is it a Good Idea to Refinance Home Loan in Nigeria? 

Yes. Refinancing your home loan in Nigeria can be a wise move. You can save money if you refinance a high-interest loan into a low-interest loan. It also gives you a longer time to repay the new debt.

Can I Use My House as Collateral for a Loan in Nigeria?

Yes, you can, as long as the title is not defective. The property should have a Certificate of Ownership, Deed of Sub Lease or Deed of Conveyance, registered Deed of Assignment.

Ready to Refinance Your Home Loan?

As we earlier mentioned, refinancing can be a complex concept. It’s a two-edged sword. On the one hand, you may find yourself saving a whole lot of time and money when you choose to refinance your home loan. On the other hand, you may incur more debts and find out that you didn’t save anything at all. To avoid disappointment, ensure you follow the guide we have provided above. And if you need more financial insights, stay close to our blog, because we are always ready to deliver. 

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