What Are The Current Mortgage Rates And What Are My Financing Options?
Owning a home is a cherished dream for many in Pakistan. However, navigating the complexities of securing financing can be daunting. This blog post aims to clarify the current mortgage landscape in Pakistan (as of February 26, 2024) and explore your Pakistan home loan as well as financing options, categorized by conventional and Islamic banking.
Here is what you need to know about the Current Mortgage Rates And Financing options.
An Overview Of Current Mortgage Rates In Pakistan
On Monday, February 26, 2024, the average interest rate for the benchmark 30 years was 7.32%, up 8 basis points last week. The national 30-year fixed refinance interest rate is 7.25%, three basis points lower than last week if you want to refinance your current loan. Over the past seven days, the national 15-year fixed refinancing interest rate has increased by 14 basis points to 6.81%.
Currently, everyone agrees that mortgage rates will start to decline in 2024. It’s essential to evaluate offers, whether you need a mortgage immediately or have one coming up in the future year or two. You may find current deals on a range of loans from Bankrate; these offers are frequently far less than the national average. To make locating the ideal mortgage for your circumstances easier, we show you the interest rate, APR (rate plus expenses), and anticipated monthly payment provided by the lender.
Current Average Mortgage Rates Offered By Different Banks
As of February 2024, Pakistan faces a historically high benchmark interest rate set by the State Bank of Pakistan (SBP) at 22%. This significantly impacts mortgage rates, typically tied to the SBP rate.
Here’s a snapshot of the current average mortgage rates offered by different banks:
- Conventional Banks: 24% – 26%
- Islamic Banks: 23% – 25%
It’s crucial to remember that these are averages, and individual rates may vary depending on several factors, including:
Loan Type
Different loan types, such as fixed-rate or variable-rate mortgages, can have various interest rates.
Loan-to-Value (LTV) Ratio
The LTV ratio refers to the percentage of the property’s value you borrow compared to the down payment. A lower LTV typically translates to a lower interest rate.
Creditworthiness
Your credit score significantly impacts your loan eligibility and interest rate. A higher credit score qualifies you for better borrowing terms and lower interest rates.
Negotiation
While less common in Pakistan, negotiating with lenders can reduce your interest rate.
Conventional Banks
Conventional banks offer various mortgage options, each with its unique features and eligibility criteria. Here are some prominent examples:
State Bank of Pakistan
For the first time in Pakistani history, the State Bank of Pakistan has introduced Roshan Apna Ghar. This product allows holders of Pakistani Origin Cards (POCs) and Non-Resident Pakistanis (NRPs) to digitally and remotely purchase, build, or renovate a home in Pakistan using either bank financing or their funds.
For a duration ranging from three to twenty-five years, financing is offered at highly appealing rates in both conventional and Sharia-compliant variations. Obtaining a housing loan or investing in Pakistan’s real estate market is an easy and speedy process for Overseas Pakistanis due to the simplified methodology and end-to-end digital process.
Askari Bank
Whether you are buying, building, renovating, or transferring your existing home loan, Askari Mortgage Finance offers the right plan to you. Housing Finance AKBL offers;
- Purchase of House/ Apartment/ Flat/ Residential Unit
- Purchase of Plot (+) plus Construction
- Construction of House/ Residential Unit on already owned residential plot
- Renovation of House/ Apartment/ Flat/ Residential Unit
- Extension/ Expansion/ Improvement
- Balance Transfer Facility (BTF) against existing financing facilities of borrowers from other banks/DFIs.
Meezan Bank
Easy Home is a complete interest (Riba) free solution to your home financing needs. Unlike a conventional house loan, Meezan Bank’s Easy Home works through the Diminishing Musharakah, where you participate with Meezan Bank in joint property ownership. The nature of the contract is co-ownership and not a loan. This is because the transaction is not based on lending and borrowing money but on joint ownership of a house. Meezan Bank, thus, shares the cost of the house being purchased. Creating common ownership and gradually transferring ownership to the consumer instead of simply lending money is the primary factor that makes Easy Home Shariah-compliant.
With Easy Home, you participate with Meezan Bank in joint ownership of your property, where the Bank will provide a certain amount of financing. You agree to a monthly payment to the Bank, of which one component is rent for the Home and another for your equity share. The total monthly payment is regularly reduced as your property share grows. When you have made the total investment, which had been agreed upon, you become the sole owner with a clear title to the property.
Financing Options With Islamic Banks
Islamic banks offer Sharia-compliant financing options based on Islamic principles that avoid interest charges. Instead, they utilize profit-sharing and leasing models. Here are some standard options:
- Ijara wa-Iqtina (Ijarah Purchase): This model functions like a lease-to-own agreement. The bank purchases the property and leases it to you with a monthly payment that includes rent and a portion towards gradually owning it.
- Musharaka (Partnership): This model involves the bank and the buyer co-owning the property according to a predetermined ratio. The buyer makes monthly payments, including their share of rent and profit generated from the property.
- Diminishing Musharaka: Similar to Musharaka, this model involves co-ownership, but the bank’s share of ownership gradually decreases over the Pakistan home loan term until full ownership is transferred to the buyer.
Conclusion
Before finalizing any loan, compare rates and terms offered by multiple banks, both conventional and Islamic. Consult financial advisors or property experts to assess your financial situation and navigate loan options effectively. Before signing, thoroughly understand the loan agreement, including all terms, conditions, and potential fees.