Oran Hall | Choosing between NHT and private lenders
Published:Sunday | August 23, 2020 | 12:22 AM
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER
QUESTION: I just came across an article online where you responded to a National Housing Trust, NHT, contributor's question and thought I would reach out to you with mine. I live overseas and own an NHT home in Portmore Pines, St Catherine, paid in full now for several years. I am considering home improvement and am looking into obtaining a loan.
NHT advised that I would need to make at least one year of contributions (3% of my monthly income) to qualify for a loan with a 4% rate. I looked into other lending institutions, and they are lending without the one-year criterion at 8-9%. Which do you think is the better option for me?
– Janice
FINANCIAL ADVISER: The answer depends on what matters most to you – the waiting period of one year or the monthly payments. If the term of each loan is the same, it is not hard to see that the NHT loan would cost you less.
To qualify for a loan from the NHT, you would need to register as an overseas voluntary contributor of the NHT. To become an overseas voluntary contributor, you must be a permanent resident or a citizen of the country where you are living. To register, you must complete the Voluntary Contributor’s application form.
Holders of work permits are not considered overseas voluntary contributors and should file their returns – forms SO4 & SO4A – at Tax Administration Jamaica, TAJ, as their domicile address is in Jamaica.
The documents required in order to register are: Tax Registration Number card; National Insurance Scheme card; valid photo identification, such as your driver's license or passport; and proof of overseas residence – such as a Permanent Resident Card, Indefinite Card, or passport for country of residence.
Photocopies of any of these documents will need to be signed, stamped, and dated by a notary public.
To qualify for loans, voluntary contributors must have paid 104 weeks or two years of contributions, of which 52 weeks, or one year, must be paid in the period leading up to the date of application.
As a former contributor, you are only required to pay for one year to become eligible to apply for the loan. It is not a requirement for you to pay the year’s contribution in a lump-sum payment, but you can if you desire to do so, but you must wait for one year before making your application for a housing benefit.
Otherwise, you should make monthly contributions for a year. Such payments must be made before the 14th day of the following month. Your declared income should be stated in the currency in which it is earned and likewise for your monthly contribution payments.
Applicants for loans are required to attend an interview, but you can appoint someone to attend on your behalf by submitting a letter of authorisation for your representative to act for you. It should be signed, stamped, and dated by a notary public. You will be required to submit additional documents to those used for registration.
Since you have previously received a benefit from the NHT, you would be able to borrow up to $2. 5 million, if the NHT determines you can afford it, to improve your home through the Fifteen Plus Loan product if you derived the benefit at least 15 years ago. If the cost to improve the unit is more than the amount being borrowed, you must expend the difference prior to any disbursement by the NHT.
One consideration in making your decision is the amount of money you plan to borrow. The NHT’s limit is $2.5 million, but it is possible you could be able to borrow more directly from another lending institution. It is also possible to borrow from the NHT and another lender that is willing to enter into a joint mortgage arrangement ranked pari passu, or equally, with the NHT.
The maximum term of the loan from the NHT is the difference between age 70 and your current age. That would enable you to have more time to pay and thus reduce the monthly payment. The other lending institutions, on the other hand, generally require that borrowers repay their loan by age 65.
The lower rate and potentially longer term attached to a loan from the NHT make it quite attractive. The benefit should ultimately outweigh the one-year contribution you would be required to pay – refundable in the eighth year after payment – to qualify for the loan.
It is up to you to determine if you want to wait for a year, during which time the cost of improving your home will likely increase.
Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.