A mortgage is a loan. It is a loan offered by banks and other financial institutions to homebuyers. The property is used as collateral for the loan. To get started, most banks will require a down payment of 20% of the value of the property.
An advantage of taking a mortgage is that you own a little piece of the property every time you pay off the mortgage. Conversantly, this is not the case with paying rent.
Taking a mortgage on a property strips the ownership into two: equity, which is what you own, and debt, which is what the bank owns. Therefore, when making mortgages repayment, you buy more equity and end up owning the property by the end of the amortization period.
Another advantage of taking a mortgage is that you can trip the value of the property once you have bought it. Let’s say, for instance, you take a mortgage of 4,000,000 ksh and buy a property.
Say, you find a person who is interested in the property and is willing to pay you 7,000,000 Ksh. If you chose to sell the property at that amount, you will have made a cool 3,000,000ksh. You only require paying the bank what you owe them, and not a cent of the profit you made.
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Types Of Mortgages Available In Kenya
There are several types of mortgages available in Kenya, including:
Fixed-rate mortgages:
With fixed-rate mortgages, the interest rate remains the same for the entire term of the loan. This type of mortgage provides predictable monthly payments and is a good choice for borrowers who want stability.
Adjustable-rate mortgages (ARMs):
An adjustable-rate mortgage has an interest rate that can change periodically over the course of the loan. The interest rate is usually lower at the beginning of the loan term and can increase or decrease depending on market conditions.
Interest-only mortgages:
An interest-only mortgage allows borrowers to pay only the interest on the loan for a certain period, usually between 5 and 10 years. After this period, the borrower must begin paying both the principal and interest on the loan.
Equity release mortgages:
An equity release mortgage is a type of loan that allows homeowners to borrow against the value of their homes. The loan is repaid when the homeowner sells the property or passes away.
Islamic mortgages:
Islamic mortgages, also known as sharia-compliant mortgages, are designed for Muslim borrowers who follow Islamic law. They do not charge interest but instead use a profit-sharing arrangement where the lender and borrower share the profits and risks of the property.
Buy-to-let mortgages:
A buy-to-let mortgage is a type of mortgage for landlords who want to purchase a property to rent out to tenants. The loan is based on the expected rental income and not the borrower’s personal income.
When choosing a mortgage in Kenya, it’s important to consider your financial goals, budget, and risk tolerance. It’s also important to compare multiple lenders and their mortgage products to find the best deal for your specific needs.
Mortgage Loan Requirements In Kenya
For most banks and other financial institutions, you will need the following documents to get a mortgage. Note, however, that the exact documents required may vary from one institution to the other. Check with the lender you prefer just to be sure.
Here is a mortgage checklist you will need.
- A signed mortgage application form
- Original copies of your identification documents, ID, or Passport
- An introduction letter from your employer (for those employed)
- 3 months’ payslip
- Certified bank statement for at least 6 months
- Letter of the offer or a sales agreement (when looking to purchase)
Top 10 Mortgage Loan providers in Kenya
Here are some of the top mortgages providers in Kenya, and what they charge as the average annual interest rate.
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You might want to check them out when looking to buy your dream home.
- Housing finance group
- Standard chartered bank 12.2%
- Citibank Kenya 12.5%
- Commercial Bank of Kenya 12.9%
- KCB Bank 13.3%
- NIC Bank Kenya 13.4%
- CFC Stanbic bank Kenya 14.1%
- Barclays Bank of Kenya 14.4%
- Co-operative Bank 14.9%
- Consolidated bank 15.1%
Disclaimer: the figures are just an estimate and may vary from time to time.
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