In our previous blog post, "Mortgage 101: A Beginner's Guide to Buying Your First Home in Kenya," we explored the basics of mortgages and the homebuying process. Now that you've gained a solid foundation, it's time to dive deeper into the crucial components of your mortgage: interest rates, fees, and repayment terms. In this Mortgage 102 post, we'll break down these elements, helping you make informed decisions and navigate the process with confidence.
(If you haven't read our Mortgage 101 blog post yet, we highly recommend starting there to ensure you have a strong understanding of the homebuying journey. [Click here to read Mortgage 101.]
Section 1- Interest Rates Explained
The interest rate is the cost of borrowing money for your home, expressed as a percentage of your loan amount. It can significantly impact your monthly payments and the total amount you'll pay over the life of your mortgage.
Types of Interest Rates:
- Fixed Interest Rates
- Remain constant throughout the loan term
- Provide predictability and stability in monthly payments
- Ideal for borrowers who prefer consistency and long-term planning
- Adjustable Interest Rates
- Can fluctuate based on market conditions
- Typically start lower than fixed rates but may increase over time
- Suitable for borrowers who plan to sell or refinance within a few years
Tip: Consider your long-term financial goals and risk tolerance when choosing between fixed and adjustable interest rates.
Section 2- Mortgage Fees Demystified
In addition to interest, several fees are associated with obtaining a mortgage. Being aware of these fees can help you budget and avoid surprises during the homebuying process.
Common Mortgage Fees:
- Valuation Fees
- Paid to a valuer from KCB's approved panel for assessing the property's value
- First KES 2M at 1%, residue at 0.25%
- Additional disbursements and 16% VAT
- Legal Fees
- Paid to an approved KCB lawyer for drafting charge documents and representing the bank
- 0% of the loan amount, subject to a minimum of KES 28,000
- Stamp Duty
- Payable to the government on transfer of title for purchase cases only
- 4% of the property cost
- Stamp Duty on Charge
- Payable to the government to register the charge
- 1% of the loan amount
- Insurance Premiums
- Mortgage Protection Insurance (MPI): 0.42% of loan amount for one borrower, 0.63% for two borrowers
- House Owners Comprehensive Insurance (HOCI) + Social Perils: 1.25 per 1000 plus 0.05% of the insurance value
- Retrenchment Insurance (for employed borrowers): KES 1,500 p.a. or KES 125 p.m., covering up to KES 3M in loan repayments for 9 months
- Mortgage Guarantee Indemnity (MDGI): 2.5% on the excess of 90% financing, and 15% for 100% and 105% financing
Tip: Ask your KCB mortgage advisor for a detailed breakdown of all fees associated with your mortgage to help you plan accordingly.
Section 3- Repayment Terms and Options
Your mortgage repayment term is the length of time you have to pay off your loan, typically ranging from 10 to 25 years. The repayment term, along with your interest rate and loan amount, determines your monthly mortgage payments.
KCB Repayment Terms:
- KCB offers flexible repayment terms of up to 25 years for residential mortgages
- Longer repayment terms mean lower monthly payments but more interest paid over time
- Shorter repayment terms result in higher monthly payments but less overall interest
Repayment Options:
- Principal and Interest Payments
- Each monthly payment includes a portion of the loan principal and accrued interest
- Helps you gradually reduce your loan balance over time
- Interest-Only Payments
- Monthly payments cover only the interest on the loan for a set period
- Principal payments start after the interest-only period ends
- Can lower initial monthly payments but may result in higher overall interest costs
Tip: Use an online mortgage calculator to explore how different repayment terms and options affect your monthly payments and total interest paid.
By understanding interest rates, fees, and repayment terms, you can make more informed decisions when choosing a mortgage that fits your unique financial situation and goals. Remember, the KCB mortgage team is here to guide you through the process and help you find the most suitable home loan for your needs.
And there you have it folks. That is all we have for you in this episode, but we will be back with more mortgage gems that you do not want to miss.
Ready to take the next step? Contact KCB Mortgage through email at KCBKenyamortgages@kcbgroup.com or call us through 0711 087 000/0732 187 000.
Until next time…
Over and Out,
Witty Banker.
