Kenya Real Estate Debt Financing – Demystifying Mortgages financing & a look at Ways of reducing your Cost of finance.

The dream of homeownership is exciting, but in reality, diving into the real estate market can be daunting as real estate market reports continue to indicate rising housing prices. If you intended to buy a residential property in Nairobi or one of its bedroom communities, for example, the average cost you would need is Ksh 13.6 million (US$ 131148) for a 2-3 bedroomed property or Ksh 43.1 million (US$ 415622) for a 4-6 bedroomed property. And it is getting more expensive. If you are like most people, putting a roof over your head is probably the biggest expense. But by buying a house, you have control over the rising housing costs.

Despite the recently lowered standard base rates, courtesy of the CBK, it is worth exploring options that can help keep your mortgage financing costs to a minimum while allowing you to fetch the most value for your money.  Below, we discuss mortgage financing in Kenya and some of the ways that go a long way to reducing your cost of financing.

  1. Shop around

When looking to keep the mortgage costs down, the best place to start is to find the best mortgage rates in the market. Lower rates help to minimize regular payments and reduce interest paid over the life of the mortgage. While it’s tempting to overlook other lenders in favor of your bank, doing proper research and comparing deals can lead to significant savings. According to a survey by the World Bank, middle and small sized banks offer the best mortgage rates in comparison to the larger counterparts for similar loan sizes.

  1. Shorten your amortization period

Another option to reduce the overall mortgage cost is to trim down the amortization period. Long amortization periods result in lower regular mortgage payments but also accrue more interest over time. Historically, most buyers have opted for the 25-30 years mortgage term. Shortening the amortization period has the opposite effect. Higher regular payments direct more to the principal balance owed and reduce the interest paid altogether.


  1. Make a bigger deposit

Borrowing down payment on top of a mortgage loan is becoming a common spectacle among Kenyan buyers. However, there is a limit to how much one can borrow when considering a double loan repayment. Often, this means that a borrower will consider the least amount required for a down payment, usually 10 percent, to keep the double-loan payments to a minimum. This heavily increases the loan burden and does little to help reduce overall mortgage costs.

While it’s harder than ever to come up with money for a down payment, paying at least 20 percent for a down payment is one of the best ways to reduce your mortgage payment because it eats away what would otherwise be high-interest costs.

Depending on the mortgage terms, the lifetime cost difference between borrowing 90 percent and 80 percent can be immense. As a short-term solution, you’ll owe less principal.



  1. Make extra and/or accelerated Payments

When you need to reduce your payments right now, paying more doesn’t make any sense at all, but if you’re looking down the road for a way to shed some weight to accommodate other expenses, reducing your principal is key. Instead of making your regular 12 monthly payments, consider switching to 26 bi-weekly payments — your lender can set this up for you so that you get a regular statement. By reducing your principal as quickly as possible, you’re also reducing your interest costs, which is based on your outstanding loan balance.  Along with comparable lines, it merits overpaying on your home loan on the off chance that you can stand to do as such. Most home loans enable you to overpay without bringing about extra expenses and doing as such implies that you will pay off the home loan faster, sparing thousands in additional charges all the while.


  1. Take advantage of the civil service benefits

In a household where one member is part of the Kenyan civil service, it is easy to acquire affordable mortgage facilities with single digit interest rates of up to 5 percent coupled with repayments periods of up to 20 years.

Through the Civil service housing scheme fund, top-ranking officers have access of up to Ksh 20million while junior officers are entitled to a mortgage of up to Ksh 4 million.

While this government provision only caters for individuals in the civil service, the government plans to extend the benefits to the public in its low-cost housing agenda through partnerships with commercial banks.


  1. Consider Buy Over Long Term (BOLT) Offers and Fee-free options

Various developers in the country have developed a new product in response to the high cost of borrowing and to enable more people to buy their own homes. The BOLT scheme effectively bypasses banks, cutting out the middleman and reducing interest rates by making the buyer’s money work for them directly with the developer. With this option, you can select a house at a fixed price and make payments towards it over a period of an agreed time, popularly, 3 years. And when the house is ready, one can pay down the balance in cash or take a small loan to pay it off which is cheaper to pay compared to traditional mortgage lending. Each BOLT agreement is tailored to meet the individual circumstances of the buyer following a one on one meeting and, in the event that the buyer has a change of mind during the period of the agreement, the money contributed is refunded with or without deductions based on the developer.  While not suitable for everyone, this innovative approach can help in actualizing home ownership and reducing the cost of finance


To attain the highest value for your home purchase, do your exploration and take as much time as is needed. Take a look at various properties in the market to ensure that when you are paying the home loan over a period of time, despite everything, you still adore the place that you picked 10, 5 years back. Visit different institutions and get the cost with the least undesirable repercussions on your personal finances.

This article is written by Buildafrique Consulting Group; a Kenya Real Estate Consultant and Development Solutions provider that offers End-to-End Financial, Development Management, and Investments Solutions in Real Estate, to allow Developer, Investors, and prospective Home Owners manage risks and realize value for their investments in a fast-evolving Real Estate market.

Contact Us today for Solutions to your Challenge in Real Estate Investments and Project Development:

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