Have you been considering to take a mortgage? This is what you need to know

It is estimated that about two-thirds of Kenyan urban households live in informal settlements. This has been caused by rural-urban migration as young people come to urban centres in search of employment. This creates a great need for cheap housing in urban areas thus exerting pressure on housing. It is the desire of each and every individual to own a place to call home. However, the low incomes of many Kenyans prevent them from owning expensive properties offered in the market and they end up considering taking up mortgages. If you have been considering taking up a mortgage below is what you need to know. A mortgage, according to the dictionary, is a legal agreement by which a financial institution lends money at interest in exchange for taking title of the debtor's property. They sum it up with the condition that the conveyance of title becomes void upon the payment of the debt. There are two main types of mortgages in Kenya namely;

  • A fixed rate mortgage – this type of mortgage has fixed interest for the loan’s duration. Once you borrow the interest does not fluctuate throughout the length of the mortgage.
  • Adjustable Rate Mortgage – this type has a changing interest rate that changes periodically.


Advantages of mortgages

  • It is easier to repay a mortgage because of the longer repayment duration
  • The requirement to only pay a small percentage of the house or land total cost makes it easier as less money is required upfront

Disadvantages of Mortgages

  • They require the borrower to have a great credit score for one to qualify
  • High cost due to interest rates, insurance and legal fees charged
  • Prolonged debt that one needs to keep paying for years.

While a section of Kenyans desire to take up mortgages as a way to home ownership. The main barriers to mortgage issues according to Centre for Affordable Housing Finance 2019 report is asset-liability mismatch by tenor due to the relatively long term nature of mortgage loans and short-term nature of bank deposits, limited capital markets funding for mortgage resulting in low supply of long- term capital, a complex legal and regulatory framework and collateral requirements making mortgages exceedingly expensive. All these factors have led to low mortgage uptakes in the country. In conclusion, the hope of Kenyans getting cheap mortgages. The Kenya Mortgage Refinancing Company is set to avail mortgages at 7 percent interest for Kenyans earning below Ksh. 150,000. While this will favour a section of Kenyans, the low income earners can consider purchasing affordable land for sale in satellite towns and building their homes gradually and ultimately settle their families.