Myths About Mortgage Financing In Pakistan – From Facts To The Fiction!

By Author: William King
Total Articles: 44
Comment this article

If you are a Pakistani like me, you must be familiar with the famous slogan of ‘Food, clothing and shelter for all’ that the members of Pakistan People’s Party have been raising since decades, Frankly speaking, this slogan is mostly used for luring the voters and the truth is that a large number of Pakistanis are shelter-less. According to a research done back in 2009, housing shortage in Pakistan had reached to the staggering high count of 7.57 million, which stats show that housing sector has only been able to serve 31% of the total population.
You must be thinking why the homeless people with decent income do not invest in Pakistan real estate or why don’t they approach banks for getting home loans? Although, the inability to meet banks criteria set to qualify for the mortgage loan makes it difficult for many people to apply for home loans, yet various misconceptions about mortgages in Pakistan is the major reason why it is not an option for many of them.
I have met many residents in Pakistan, who have reasonable and steady incomes but are not willing to apply for mortgages. There are several myths associated ...
... with home loans which hinder most of the potential buyers from apply for these loans and thus miss to live in their dream homes. I would like to debug these myths and encourage the buyers to make the most out of the tempting mortgage rates that are fixed by the government to uplift the demand of Pakistan real estate sector.
Myth # 1: Buyers assume that the best score to apply for the mortgage in Pakistan is 740 points. Since mortgage loans are huge loans which tie up the large monies of bank, they are not willing to lend if the credit score of borrower is below 740 points. This is wrong. There are many banks in Pakistan granting loans for Lahore, Karachi and Islamabad property to the prospective buyers who have credit scores as low as 580 points. The mortgage products known as ‘bad credit mortgages’ are also becoming popular in Pakistan which are specially meant to cater to the needs of buyers having low credit scores.
Myth # 2: Many buyers think banks in Pakistan charge a high interest rate on mortgage loans which are not deductible for income tax. This is also wrong. First of all, banks are currently charging interest rates from a salaried person equal to 1 year KIBOR (Karachi interbank exchange rate) or LIBOR (Lahore interbank exchange rate) plus up to 5% bank margin, which is really worth having your own home in Pakistan. Moreover, according to the latest income tax laws, at least the interest portion of the total mortgage loan liability is tax deductible.
Myth # 3: Modern buyers also assume that mortgage loan means a loan having a repayment plan of not less than 30 years and those who want to get rid of this liability in less than 30 years, simply can’t do it. This is merely a misconception, since banks in Pakistan are currently offering mortgages having repayment plan of not more than 20 years. If you think you can repay the loan earlier, you can negotiate with the bank to clear your debt liability easily. Only for that, you have to pay up to 10% of the remaining liability as extra prepayment penalty.
Myth # 4: Many buyers also think that if they don’t have a down payment equal to 20% of the total home value, they would either not get the approval of loan or would be required to pay for PMI (Private mortgage insurance). This is true to some extent but it also varies from bank to bank in Pakistan. There are various banks that offer mortgage schemes which require only 5% down payment and even less than that for the buyers who don’t have enough savings to put down for the loan. Moreover, requirement of PMI is also not mandatory and it varies from bank to bank.
Myth # 5: Many buyers think that if in any case, they become jobless or miss their payments, banks in Pakistan would foreclose their home and sue them. This is also wrong because banks are there to help the budget constraint buyers. They don’t go for foreclosing immediately as it is also a hectic process for them. If you miss your few payments and go to negotiate with them about your financial condition after receiving reminders, they can revise the terms of loan for your convenience. Even if they are not ready for the help, options of debt settlement and mortgage financing is always open.

About the Author:
William King is the director of Pakistan Property, Islamabad Property and Pakistan Real Estate. He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements.