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September 12, 2022

Factors to Consider Before Taking a Mortgage Loan in Kenya

Type of mortgage: Your risk tolerance will determine the type of mortgage you take. While a fixed mortgage helps you budget since the monthly payments are fixed, you may end up paying more in the long run. A variable mortgage can help you pay less in interest if rates drop – but if they rise, you pay more.

Upfront Fees: Before you take a mortgage, consider how much you want to pay in a down payment. The more you pay out of pocket, the more house equity you get outright and less interest you will pay. You will also have negotiation power and can bargain for a lower rate and longer repayment window.

Hidden Fees: Mortgages come with many fees you will pay before and after approval. These fees will add up at the end of the day, and if not careful, it can affect your budget. Factor in all the additional payments you will make in your budget before taking this homeownership route.

Debt to income ratio: A mortgage is an extended loan; therefore, before taking it, ensure that you can meet all the monthly payments without affecting your lifestyle. Consider all the other debts you are servicing and ensure you are not spending more than half your income to pay loans. Also important is, are you going to take other loan types in the future? You probably are, which means you may want to be sure that the repayments on your mortgage are not going to lock you out of another bank loan that could have been used to say, take advantage of an opportunity or deal with an emergency.

Pitfalls to Avoid When Taking a Mortgage Loan 

A mortgage can help you buy a house pretty quickly as less money is paid upfront; however, it can cause significant financial damage if you are not careful. Here are some common pitfalls to avoid when taking a mortgage loan.

Approaching one Lender: Different lenders have different terms and fees. Before settling on one, talk to different lenders and compare all your offers. Ask for a full breakdown of all the payments and fees you will pay and settle on the lender with the package that appeals to you. Shopping around can help you save money.

Losing your Income: Losing your income while still paying your mortgage can lead you to default and lose your house. You should take necessary steps like increasing your income streams and getting mortgage insurance to avoid foreclosure when losing your primary source of income.

Future Expenses: When thinking about a mortgage, you should factor in future expenses that might affect your budget and repayment. You should plan how to factor in all your future bills like educating your children, retirement planning, and health emergencies. You should be able to meet all your other financial goals while also servicing your loan.

Affordability: Before taking a mortgage or any loan for that matter, it is crucial to be sure that you can afford it. Just because you were approved for a certain amount doesn’t mean you should take it. Only take loans you are sure you can repay without stretching yourself and affecting your lifestyle.

Getting a mortgage can be daunting, and with so much paperwork, research, and money involved, it can be scary and overwhelming for first-timers. Before taking this route, it is essential that you talk to your financial advisor, who can help you figure out how much loan you can afford to pay, how to raise your down payment, and how to invest and save to pay back the loan.

You should also consider getting your mortgage through the government-backed Kenya Mortgage Refinancing Company (KMRC), which will allow you to get loans at lower than market rates and a longer repayment window. This means you will pay lower monthly instalments and lower interest in the long run compared to borrowing directly from a bank or SACCO. Your real estate agent or lawyer can help you through the process and ensure you get the best deal.

Like all other homeownership routes, Mortgages might not be the best option for everyone. It can allow you to achieve your homeownership dream faster, but when you factor in the interest you will pay, you might buy the house for almost double the market value. Research all the homeownership options available and settle with the one that suits you financially.

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