Homeowners can pay off mortgages in five years - BoN

Bank of Namibia (BoN) governor Ebson Uanguta has urged commercial banks to inform homebuyers that they can repay their mortgages in as little as five years if they can afford the higher monthly instalments.

The directive comes amid growing debate over why most Namibians automatically associate home loans with repayment periods of 20 years or longer, even when some borrowers may be able to settle their debts much sooner.

Speaking during the central bank's monetary policy announcement in Windhoek last week, Uanguta said there is no law or banking regulation preventing banks from offering shorter mortgage repayment periods.

"There is no prohibition in the law or in the regulations of banks that prohibits them from allowing their clients who are buying houses to pay for that house within the shortest possible time," Uanguta said.

The governor said many prospective homeowners are simply unaware that they have options beyond the conventional 20-year mortgage.

"They should not be making an assumption that if it is a house, it is 20 years," he said.

Uanguta added that the central bank has engaged with Prime Minister Elijah Ngurare and the Bankers Association of Namibia on the issue, with commercial banks committing to provide customers with clearer information on various repayment options.

"If the client can afford to pay the house in five years, I think the banks have made that commitment that they will be communicating that to the client," he said.

Hypothetical example

The discussion gained momentum earlier this month after Ngurare asked why a vehicle worth around N$2 million can often be financed and paid off within five or six years, while a house of similar value is commonly financed over two decades or more.

Uanguta explained that affordability remains the deciding factor in determining a mortgage's repayment period.

Using a hypothetical example, he said a borrower paying around N$6 000 per month over 20 years could see repayments rise to about N$9 000 if the loan is shortened to 10 years.

Reducing the repayment period to five years could increase monthly instalments to between N$10 000 and N$12 000.

"The discussion between yourself as a client and a bank is affordability, but at least that information and opportunity is granted to you," he said.

The governor stressed that the central bank's immediate concern is to ensure consumers are fully informed before committing to long-term debt.

"That awareness will continue and that information will be communicated clearly to customers and clients by the commercial banks, and that has been our directive as well to the banks in response to the request by the prime minister," he said.

The Bankers Association of Namibia said mortgage repayment periods are primarily determined by affordability and a borrower's ability to meet monthly obligations.

The association noted that while shorter repayment periods reduce the overall cost of a loan, they also increase monthly repayments and may place homeownership beyond the reach of some buyers.

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