How to Get the Best Mortgage for a Home

Demand for urban homes in Kenya is estimated at 150,000 units a year. That means more people are out looking for mortgages. But how will you decide which mortgage to take? It depends on your ability to understand and evaluate your complex circumstances some of which stretch far into the future.

BY Emma Muli

Buying a home presents short but complex dilemmas. For example, should you take a long term or short term mortgage? Whether you will get the right answer to the question will depend on your ability to understand and evaluate your complex circumstances, some of which stretch far into the future.

If you have a high flying job or a heartthrob business, you will probably decide on a short term mortgage. But according to Mr. Patrick Wameyo, an expert in mortgage financing, you actually shouldn’t.

“Always borrow a loan for a long period,” Mr. Wameyo who is the head of mortgage lending at the Barclays Bank of Kenya, advises. And the reason is so obvious that many home buyers do not think of it at all. That reason is that, “you are actually borrowing because you do not have the money to buy your house outright.”

Mortgage Nightmares

This initial decision is so important – and so often ignored – that many experts attribute most mortgage problems to it.

Take the case of James Kamau. When he decided to buy a home in Nairobi, he had a high paying job and his prospects of even rising higher were very bright. So he thought he could pay his mortgage in leaps. That way he would free himself from the horrid chains of a mortgage sooner. So he took a mortgage for only a few years.

What Kamau didn’t foresee was the change in circumstances in his place of work. His immediate boss was transferred. For a reason he says he doesn’t understand even today, Kamau could not get along with his new boss. He was sacked from his job three years into his mortgage. And with that, his mortgage nightmare started.

“I was running mad – literally,” Kamau, who has had to rearrange his mortgage repayment for more times “than I care to remember,” now recalls with regret and bitterness. “In fact, I have had to borrow money to keep repaying my mortgage. That hasn’t improved my situation at all.”

Take Care of the Unexpected

Kamau’s problem also illustrates the second reason you should go for a long term loan – and that is, to take care of the unexpected. If you take short term loan, your repayment rates are likely to be too high for you to afford to repay if your income flow is interrupted even momentarily. In addition, you can always in an extra mount to reduce your loan balances.

Dr. Peter Onyango chose to take a 20 –year loan though he had a well-paying job. A few years later,he chose to quit his job to start a business that didn’t pick up. But he was not worried. He could still repay the loan comfortably from his meager resources until he was able to repair his income again.

Long Term Mortgage Gives You More Money

According to Mr. Wameyo there is still another reason you should always take long term mortgage. And that is that you can get more money. Here is how:

The amount of money you can borrow depends on your monthly income which determines your ability to make monthly repayments. Suppose, based on this, you could afford to take out a one million shillings loan. If you must repay that in one year, you must be prepared to part with Shs 100,000 every month for the premium alone. Assume you did the opposite in the same cir­cumstances - say you took the loan for 10 years instead of one year. Your monthly repayment of your premium would be only Shs 10,000 — far below the Shs 100,000. In this case, with the same repayment capacity, you can qualify for a much higher loan.

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