Mortgages are actually within your reach

Early repayments lower any of the mortgage variables. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • Unsecured loans save you mortgage-related initial charges such as valuation fees and stamp duty.
  • One way to manage the interest is to make lump sum payments whenever you stumble upon some extra cash.

You have been following the miniseries I have been running here about mortgages in Kenya. (I know you have.) The curtains today close on it.

I have spoken to Kenyans servicing mortgages and to financiers extending this service.

I initially thought I was more likely to run into a Rendille camel strolling down Kimathi Street than to find homeowners servicing mortgages.

I mean, statistics from a "Central Bank 2017 Survey" says that there are only 26,187 mortgages in Kenya.

I had my assumptions when I began this miniseries in early October. I revisit them with the insight of knowledge from research and from engaging with this small club of homeowners:

Assumption #1: Mortgages are only for the employed

No, mortgages are extended to both employed and self-employed Kenyans.

Speaking to financiers, I learned that a majority of tier one banks only finance the employed, and tier two both employed and self-employed Kenyans. Tier one banks do this to manage the risk.

Employed folk also have the option of taking a large five-year unsecured loan with the bank, your payslip is collateral.

Unsecured loans also save you mortgage-related initial charges such as valuation fees and stamp duty.

Saccos also lend high-value development loans to its credit-worthy members – employed or self-employed.

Assumption #2: Mortgages are only the employed that fall above a certain minimum income level

This is not entirely accurate. Lending institutions follow the one-third rule.

This rule says that your debt repayment ratio should not be more than a third of your net income. The banks don’t want to put a financial burden on your shoulders so heavy you will collapse.

Like the Good Lord, they want to give you a burden they know you can shoulder. One that will better you.

With a net salary of Sh100,000, the maximum mortgage you can be considered for at 13 per cent interest, is Sh5.4 million for the maximum duration of 25 years. You will repay per month Sh60,903.

Look, work with the salary you have – there is property somewhere in this beautiful land it can finance. No doubt

Assumption #3: Mortgages are for property in a particular part of the city (Goodness, did I really assume this?)

You can apply for a mortgage for property that sits in anywhere in this country.

As I mentioned up there, a majority of tier one banks mostly lend mortgages to finance ready-to-purchase property.

In addition to this, tier two banks lend for purchase of shambas, for construction of property and for off-plan developments.

Lenders have a risk metric they call Loan to Value. There are some areas they consider high risk, so when they lend, they lend only a portion of the property value; you cover the difference from your pocket.

One financier I spoke to said they only lend 60 to 70 per cent for properties in some sections of Coast.

Assumption #4: Mortgages are a form of daylight robbery

Well, to some degree, they are. Take a mortgage of Sh3.5 million lent at a rate of 13.5 per cent for 15 years.

You would repay per month Sh45,441. Assuming you run the length of the period, you will repay after these 15 years a total of Sh8.18 million.

That means the bank has earned an interest income of Sh4.68 million from what they initially lent you.

One way to manage the interest is to make lump sum payments whenever you stumble upon some extra cash. Early repayments lower any of the mortgage variables.

Assumption #5: Mortgages are a ball and chain of eternal debt

It appears that way when you are on the outside looking in. However, the women servicing mortgages I spoke to said it motivates them to work harder and drives them to be more frugal with their expenditure.

That repayment at the end of the month makes them hungry. They hunt for that money like a hungry lioness.

They don’t sit on their laurels either. There is a general feeling that nothing is out of reach – if you afford a mortgage, then you can achieve anything you dream of.

Ms Kinyatti is a certified accountant with ACCA and a former financial auditor.