Understanding Mortgage when buying property in Kenya

Lean in and let us help you understand the way mortgages work, what mortgages are, and how they can help you acquire property, be it land, a home, or construction of one. We will delve into each aspect of the mortgage for your understanding because at Cheriez Properties we pride ourselves with providing our customers as much information as possible before they make their purchase decision of our Royal Gates Kitengela Homes.

To many, the mortgage is a term that comes with its share of difficulties, but we will share everything you need to know about it when it comes to buying properties and housing financing in Kenya. Let’s begin.

But first, the definition.

What is a mortgage?

A mortgage is a debt or loan from financial institutions like banks where the property you are buying is the collateral. The property you are buying is the security for the loan offered by the bank. The loan is offered at interest and gives you ownership of the property once approved and paid to the property owner.

The mortgage covers these two areas, equity, the part you own from the down payment you made, and as you start financing the loan offered by the lender each month. The other part is the debt, which the financial institution owns and paid by you. This part is what you pay to reduce to own the property entirely. The more debt you pay, the more equity you own hence the more of the property you own. You own a piece of the property every other time you pay the monthly payments.

In Kenya, we have two common types of mortgages that are widely used according to what you as a buyer feels is okay with you. These are classified according to the interest rate paid and the time of repayment of the loan you were offered.

Types of mortgages in Kenya

The two types of mortgages used in Kenya are as follows:

  1. Fixed-rate mortgages (FRM)

The interest is calculated and fixed throughout the repayment period in this type. The amount does not change during this repayment period. It is considered expensive because you can lock yourself in a higher interest rate when the trend in the market is falling. It is also the safest.

Fixed-rate mortgages are divided into two according to the repayment period:

a) 30 Years FRM

The interest rate remains the same for 30 years in which the loan is repaid. This type is affordable compared to short-termed mortgages as the monthly payment percentages are small. This is due to the length of repayment time being longer. On the other hand, the interest rate is higher than short-termed since the lender covers themselves for a more extended repayment period.

b) 15 Years FRM

This is similar to the 30 years FRM though the loan is paid quicker than the 30 years FRM. The interest rate is lower than the long-termed mortgages due to the short time. The monthly payment percentages are higher than long-termed mortgages to cover the short repayment period.

2. Adjustable-rate mortgages (ARM)

This is the typical type of mortgage—the interest rate changes with the trends in the credit market. The changes are noticed in the repayment rates. According to the market-leading to high repayment or low repayment rates, the interest rate goes up or down. The rate is adjusted at a specified time and frequency. It can be lower than FRM during a limited time, but it changes with market trends.

ARM comes in two types, as discussed below:

a) Hybrid ARM

This is a mix of FRM and ARM for a specified time, adjusting accordingly. For example, you can pay a fixed interest for the first five years or so then the interest rate is adjusted after that according to the trend in the credit market.

b) Interest-only ARM

This allows the buyer to pay interest only for a certain period without paying the principal mortgage. After the specified time elapses, the rate adjusts accordingly, and the buyer pays the loan as required.

By now you have an idea of what a mortgage is and what to go for to finance your purchase of a home.

A mortgage financing option is available to help you purchase a home at Royal Gates Kitengela – with just a 20% deposit. Talk to us today for more detailed information on how to go about it.

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