Mortgage Providers To Consider When Buying A Property
What is a Mortgage?
Mortgages are a type of loan, it is an agreement between you (the borrower) and a mortgage lender to buy or refinance a home without having all the cash upfront. This agreement gives lenders the legal rights to repossess a property if you fail to meet the terms of your mortgage by not repaying the money you’ve borrowed plus interest.
One perk of taking out a mortgage is that you own a small portion of the property each time you pay it off. This is not the situation when it comes to paying rent.
Taking out a mortgage on a home divides ownership into equity (what you own) and debt (what the bank owns). As a result, you accumulate more equity and eventually purchase the home by the end of the amortization period by making mortgage payments.
Another advantage of getting a mortgage is that you can increase the home’s value after you buy it. Assume you obtain a mortgage of 3,000,000 ksh and purchase a property.
Assume you locate a buyer for the property prepared to give you 6,000,000 Ksh. If you chose to sell the property for that amount, you would have made a tidy sum of 2,000,000ksh. You only need to pay the bank what you owe them, not a penny on the profit you gained.
In this blog, we’ll discuss the following
- Types of mortgages in Kenya
- Loans that you might be offered
- What you’ll need to apply for a mortgage
- Kenya’s top mortgage providers
Types of mortgages in Kenya
In Kenya, there are two types of mortgages. This classification is determined by the interest rate paid on a loan.
The loan you take out on your property can be one of two types:
- Floating rate mortgage
This sort of homeowner’s loan, also known as a variable or adjustable-rate mortgage, considers fluctuating credit market rates. This means that mortgage rates will fluctuate based on the market. When interest rates in the credit market are high, so will the mortgage payback rate, and vice versa. Though risky, variable rates are frequently less expensive than fixed rates.
- Fixed-rate mortgage
The fixed-rate, as the name implies, does not change with the credit market. This form of mortgage has a set interest rate that lasts the entire loan period.
Fixed-rate mortgages are regarded as the safest, but they are frequently more expensive than variable-rate mortgages. Furthermore, you run the danger of tying yourself into a higher rate in circumstances where interest rates are falling.
Loans that you might be offered
To attract many borrowers, financial institutions try to adapt the mortgage as much as possible to a diverse clientele.
The following loans are likely to be offered by most banks and other financial institutions:
- Construction loan: For individuals wishing to construct from the ground up, the money is often handed to the contractor, who manages the project.
- Owner-occupied residential mortgage: This is for people who want to reside in the home they buy with a mortgage.
- Investment residential mortgage: This is for people who buy the house as an investment rather than as a permanent dwelling.
- To up loans, also called Equity loan, is a simpler method of obtaining additional funds by utilizing the equity you have built up. The loan might be utilized for other purposes as well.
What you’ll need to apply for a mortgage
So, now that you’ve learned everything there is to know about mortgages, here’s what you’ll need to get started on your dream home.
To obtain a mortgage from most banks and other financial organizations, you will need the following documents. However, it should be noted that the specific documentation necessary may differ from one institution to the next. To be sure, check with the lender of choice.
Here is a mortgage checklist that you will require.
- 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 an offer or a sales agreement (when looking to purchase)
Kenya’s top mortgage providers
Here are some of the top mortgage providers in Kenya and the average annual interest rate they charge. You might want to look into them if you’re trying to buy your ideal home.
- CFC Stanbic bank Kenya 14.1%
- Barclays Bank of Kenya 14.4%
- Co-operative Bank 14.9%
- Consolidated bank 15.1%
- Standard chartered bank 12.2%
- Citibank Kenya 12.5%
- Commercial Bank of Kenya 12.9%
- Housing finance group
- KCB Bank 13.3%
- NIC Bank Kenya 13.4%
The values are only estimates and may change over time.