DIASPORA MORTGAGE COMPARISONS

adobe_pdf_file_icon_32x32Mortgage Comparison Table (PDF)

Traditionally, not many Kenyans have used mortgage facilities to purchase their homes. Do you remember that uncle who took 10 years to complete his house? It is also safe to say that most Kenyans have always looked at paying upfront for their homes as a badge of honor. But as more and more people migrate to the middle class, purchasing homes or property through mortgages is becoming a popular alternative especially in large metropolitan areas. Perhaps, with job stability and relative economic stability, people are becoming more comfortable with the idea of carrying out long duration mortgage loans.

Another factor that has discouraged many Kenyans from taking on mortgage loans are the high interest rates offered by many mortgage lenders. Indeed, an article published on businessdailyafrica.com reports that 90% of Kenyans are still locked out of the mortgage market mainly due to high interest rates.

 As an example, based on calculations performed using an amortization schedule calculator on a USD 100,000 loan over a period of 20 years and at a typical 15% interest rate charged by some banks, the amounts paid in interest at the end of the mortgage term is nearly 2 times the principal amount borrowed at the beginning. Basically, you end up paying three-fold over what you would have paid upfront for the same house or property. As the amortization schedule shows, at such high interest rates, most of your payments will go towards paying interest and not principal for the life of the loan.

But the affordability of paying for a house or a rental property over a long period cannot be understated especially for those of us on regular monthly or cyclical income. One saving grace is that with the hot real estate market in Kenya, such high interest rates can be defrayed by the rapid increase in home values. This is however based on the one assumption that the market will stay hot for the life of the mortgage.

On the bright side, an amendment to the Banking Act recently passed and signed into law (effectively capping interest rates set by commercial banks to within 4 percentage points of the Central Bank of Kenya interest rate), is a step forward towards curbing the runaway interest rates currently charged by banks.

This mortgage comparisons table  prepared by Money254.com staff analyzes mortgage products offered by mortgage lenders targeting Kenyans in Diaspora. They include banking institutions, mortgage finance institutions such as the Housing Finance Group and the US-based Kenya USA Diaspora Sacco. A range of mortgage products are offered to cover land purchase, residential home construction or residential home purchase in addition to commercial property construction or purchase.

Due to the fluidity of mortgage interest rates as the interest rate amendment to the Banking Act takes effect, we advise our readers to contact the lending institutions directly for the most-up-to-date rates. However, as a guide, the following links can give you a sense of which banks have traditionally offered the most competitive rates:

Daily Nation article Feb 2016

Daily Nation  article August 2016

Star Kenya article Feb 2016

Hassconsult Real Estate 2014 Mortgage Report (PDF)

Interest rates are much lower (below 10%) in many cases when the loan is borrowed in a foreign currency such as the US Dollar (USD), Great Britain Pound Sterling (GBP) or the EURO. It must also be noted that approval of long mortgage tenures will be subject to borrower’s retirement age.

By money254.com staff – November 10, 2016

© 2017 Money254.com

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