Why Insurance is a critical aspect of your mortgage

A mortgage on a home is one of the largest debts most Kenyans incur, and indeed needs to be taken seriously.

Mortgage holders need to take steps to protect their family home in the event that payments cannot be met due to death, illness or disability.

Mortgage insurance is today a compulsory financial agreement that insures the lender against loss in case the borrower fails to pay his or her mortgage. The borrower normally pays for this insurance. 

An initial premium will be collected during the closing of a mortgage deal and depending on the chosen premium plan; a monthly payment may be included in the payment of the house made to the mortgage lender. 

 

The mortgage lender then remits the payment to the insurance firm.  The cost tends to vary depending on the size of the down payment of the home loan.

This type of insurance is beneficial to a homebuyer since it allows them to become homeowners sooner and tremendously increases their buying capacity. 

Introduction of mortgage insurance has ensured that lenders keep the down payment for the purchase price of a home low, which means you will take a shorter time to save for your dream home.

Mortgage insurance has given lenders the necessary comfort to offer bigger loans to individuals. Lending money for mortgages is today less riskier for most banks and for mortgage meaning lower and more stable interest rates. For the borrower, taking mortgage insurance will ensure the mortgage will be paid off in full, in the event of the homeowner's demise or permanent disability. 

 This kind of insurance also plays an important role in home ownership. Without mortgage insurance, many will not be able to qualify for a loan to acquire a home.

While some view it as an extra burden on the homeowner costly, it is a means of securing a mortgage and getting you closer to the home of your dreams.

Without paying the mortgage insurance, home owners will find it difficult to purchase a home or utilize their home equity. So, what a borrower may consider as a disadvantage is actually the approval factor for their loans.

Furthermore, the insurance covers your mortgage payments as the borrower in case you are unable to pay for your monthly mortgage due to illness, injury or long-term unemployment. Mortgage insurance also has the added benefit of protecting your investment as well.

It is recommended that home owners also take insurance policies that cover structures on a property, including homes and out buildings, as well as personal items, such as furniture, electronics and clothing. Homeowners insurance pays for damages and loss caused by fire, weather among other perils.

Mortgage insurance has helped overcome traditional barriers to financing. More and more homebuyers who may not have qualified for a mortgage are benefiting from mortgage insurance for example, those who are self-employed or with seasonal incomes.

With mortgage insurance, people who have maintained a good credit but might not meet conventional lending criteria can qualify for the financing they need.

Disclosure of underlying health conditions is important when applying for coverage as benefits may be denied if full disclosure was not made. However today you can take a mortgage without taking a medical examination as a result of mortgage insurance – although limited to Kshs 12.5 million in the case of Housing Finance.

Mortgage insurance protects the homeowner who suffers a severe illness that is covered under the policy such as life threatening cancers, HIV, heart attack, stroke and kidney failure.

Mortgage insurance provides peace of mind for you, knowing that your family lifestyle can continue without additional difficulties. 

By David Maveke, General Manager - Mortgage Finance at Housing Finance

How to improve your chances of qualifying for a mortgage

Before any mortgage lender can grant you a loan to purchase your dream home, they would like to make first sure you have the ability to repay. 

Your finances will be scrutinized carefully, many questions are asked and plenty of papers to fill out and sign before you know if the house you have your eye on, can be yours.

Lenders will need to consider your personal finances very carefully before making a decision. Your ability to qualify for a mortgage loan will depend on capacity to repay the debt; it depends on your earnings and employment history, expenses, number of dependents, and other obligations you have.

The amount of cash you have for a down payment and settlement costs, as well as cash reserves to deal with expenses that may arise after you're in the home will also be considered in the application stage.

Finally, the mortgage firm will require a down payment   the mortgage which varies from one lender to another.

Also considered is your Credit history - how much you owe, how often you borrow, if you pay your bills on time, and if you're living within your means.

The licensing of Credit Reference Bureaus is expected to improve the speed of risk assessment and ultimately lead to reduced lending and administrative costs. Maintaining a good credit history will go a long way in enabling you to qualify for a mortgage.

Most lenders want to know your monthly expenses and savings culture to confirm if indeed you have the discipline to commit comfortably a mortgage.

For many Kenyans the journey to home ownership is mainly halted by the inability to raise enough capital to kick start the mortgage process.

The government and private sector has responded to this need by introducing a host of new incentives aimed at making home ownership easier for the ordinary Kenyan.

The risk profile of the mortgage industry is changing in response to the demand created through customer preference.

The modern mortgage market has become more creative, and therefore this has led to an increase in the choice and diversity of mortgage packages being offered to borrowers.

By investing in a pension scheme for example, you are increasing your chance of qualifying for a mortgage. The government has today allowed customer to assign up to 60% of their accrued retirement benefits to acquire the home of their dream.

Housing Finance, for example, has introduced solutions that not only allow the client to get financing for their home using their pension, but also cater for the upfront mortgage payments such as the down payment, stamp duty, valuation and legal fees, which are often stumbling blocks to home ownership.

Another major challenge facing most home owners is the ability to have enough income to support the monthly mortgage obligations.

This challenge has been partially addressed through new solutions that allow mortgage financiers to consider supplementary income in the qualification stage.

Today Housing Finance is addressing the needs of those currently in business or planning to change from a full time career to running their own business.

The journey to homeownership starts with financial discipline. By opening a Home ownership Savings Account, you not only enjoy tax benefits as you save for your first home, but it also enables the mortgage firm to better understand your finances, which eases your mortgage application process.

By taking advantage of existing incentives and cultivating a good savings and spending culture, it will be possible to own your dream home sooner than later.

Flexible Mortgage plans now reflecting changing lifestyle

Flexible mortgages are among some of the new mortgage packages that have been created to cater for the modern day mortgage market.

Today’s mortgage market has become more exciting and therefore this has led to an increase in variety and diversity of mortgage packages being offered to borrowers.

Essentially, a flexible mortgage is paid back in varying amounts. By way of example, borrowers whose income includes a significant but seasonal income might make use of seasonal payments to make overpayments, thereby reducing the term.

Housing Finance has introduced a cyclical mortgage product which is flexible to individual circumstances.

This is especially useful for self employed borrowers and those with a variable income since they are not penalized for additional capital repayments or if payments are not made monthly.

With its all-in-one design, this product can save clients a significant amount of interest while it speeds their debt reduction.

Plus, since it frees up money on a monthly basis by helping clients to smooth out monthly cash flow and lower their debt costs significantly, it can help clients to increase their investment activities.

Flexible mortgages are particularly suited to today’s lifestyle, where jobs for life are virtually unknown, and suite those either in business or plan to change from a full time career to run personal business.

Housing Finance’s Cyclical mortgage product offers flexible repayment terms to match a customers’ business' cash flow, either on quarterly, semi-annual or annual repayment.

The Cyclical Mortgage and Makao, a product for home builders, present vastly different risk profiles, requiring risk management skills that do not naturally emerge from disciplines and training associated with traditional mortgages.

The Makao concept was recently introduced to provide potential home owners with a one-stop solution. Housing Finance in conjunction with a consortium of professionals in the building process are managing the whole process on behalf of the prospective owner.

The risk profile of the mortgage industry is changing in response to the demand created through customer preference.

Customers are demonstrating more than ever their increasing expectations of personal service and a mutually beneficial relationship with their financial institutions.

In addition to the traditional community value of home ownership, these trends mean that mortgage lending has multiple roles across the distinct phases of customer life styles that give rise to key product opportunities.

The risk profile of the mortgage industry is changing in response to the demand created through customer preference.

Housing Finance and EADB to co-finance housing projects

Housing Finance has signed an agreement with East African Development Bank (EADB) to jointly co-finance large scale projects.
Mr. Ireri said the firm will continue to seek partnership arrangements and opportunities with financial institutions as part of its mandate to mobilize additional resources for housing development.

“We have adopted the strategy of co-financing projects so as to raise the finance necessary to undertake sizeable commercial and housing projects,” Mr. Ireri said. 
He said the highly successful Bond issue that raised Kshs 7 billion has increased Housing Finance participation and capacity in mortgage lending and housing supply. 
The company, he adds, is appraising various large scale housing projects that have capital investment requirements of up to Kshs 1.5 billion.

“Gaining access to alternative sources of funding at competitive rates signals a new dawn in Housing Finance ability to attract and access long term financing,” said Mr. Ireri
EADB Director General, Ms. Vivienne Apopo said the firms will also collaborate in the area of research and in the mobilization of financial resources including the mobilization of domestic financial resources to support projects.
“East African Development Bank has adequate resources to support financing of housing in an integrated approach. We welcome initiatives to explore new financial options, including co-financing,” said Ms. Apopo.
Ms. Apopo said the bank will spearhead the establishment of a regional institution with adequate capacity to promote housing development.

“The institution would be dedicated to promoting the development of housing and housing finance in East Africa,” said Ms. Apopo.
Housing Finance, Property Finance activities span across a range of property types including residential, office space, retail shopping centers, industrial usage, hospitality and educational use.
Under a fully fledged Project Finance department comprising a mix of technical, financial and market knowledge capability, Housing Finance is spearheading concept origination, financial and technical structuring and financing of property acquisition, development and improvement across wide sectors of residential, commercial and industrial use.

Housing Finance has successfully positioned itself as the main player in the property value chain under an ambitious Property Supply Strategy.
The mortgage firm in 2010 signed a co-financing agreement with Shelter-Afrique, a regional housing finance and development institution involved in financing housing and related infrastructure development in Africa.

EABD is a regional premier development financing institution whose main objective is to provide financial assistance to promote socio-economic development of the Member States of Uganda, Kenya and Tanzania.
The Bank offers a mix of financial products and services to viable projects in the Member States. EADB mobilises local resources by issuing bonds. In cases where clients’ requirements go beyond EADB’s financing limits, the Bank can offer syndication and co-financing arrangements.

When is the best time to start planning for a mortgage?

The journey to property ownerships begins with putting funds aside as savings to achieve your long term goal of home ownership. This can be achieved by opening a 1st HOP Account, a Crossover Savings Account or through purchase of a Housing Development Bond. It is advisable to begin saving early for home purchase since mortgage is a long term commitment that requires self-discipline.

The 1st Hop account is an excellent starting point for young people who want to develop the savings discipline. It enables you to save up to Sh.4,000 per month tax free. Also, interest on the account for amounts below Sh.3,000,000 does not attract tax. The account’s key advantage is that it builds deposits and its benefits accrue when you invest in a housing project.

The Crossover Savings Account offers you very attractive features that enable you to save for long term projects such as home ownership or any other dreams you have.  These features include: earning high interest on the account deposits as well as loyalty points on every deposit, access to 100 per cent mortgage financing, up to 25 per cent discount on commitment fees, up to 2 per cent discount on mortgage interest when applying for a mortgage loan and much more.

The Housing Development Bond (HDB) on the other hand equally suits those who want to set aside money for putting up a home. The HDB requires a minimum of Sh.50,000 and offers a saving of 5 per cent on withholding tax. HDB gives you the flexibility of savings and withdrawal in case there is an urgent need for the money.

As your income grows, it is wise to put more money aside. The challenge with most of us is the culture of first spending then saving what remains.

Housing Finance receives accolade for Best Bond issue

Housing Finance, the leading mortgage firm in Kenya, has gained industry recognition for Best bond issue in the Capital Markets Awards.

The Capital Markets Awards recognize the best quoted companies in Kenya and aims at encouraging prudence and stability in the financial services sector by recognizing, awarding, and celebrating exemplary performers and successes of the sector, therefore encouraging competition.

Housing Finance highly successful Bond issue in September 2010 raised Kshs 7 billion against a target of Kshs 5 billion representing a 41 percent oversubscription. 

The bond, a first by a mortgage firm, will increase Housing Finance participation in mortgage lending and housing supply.  Housing Finance is a capital intensive undertaking which is best financed through long-term credit financing.

For over forty-five years, Housing Finance has been providing access to mortgage finance to Kenyans for the acquisition, development and improvement of property and has helped many Kenyans turn their dreams into homes all over the country by constantly developing innovative and pioneering products and services designed to meet the unique needs of the Kenyan Market.

The team is continually involved in research and gathering of market intelligence which is a key component of developing suitable products for the Kenyan public.

Kenya’s informal sector landscape is riddled with single or multiple dwelling units which have stalled or delayed due to non-viable financial solutions. Some entrepreneurs are known to opt for a variety of financing solutions that have proven too costly in terms of financing costs. Housing Finance has developed a specialized service to cater for both small and large property developers. 

Housing Finance whose 45-year expertise has seen the realization of large housing units such as the iconic Buru Buru and Komarock estates to smaller single units has assembled an in-house team with requisite experience to support both aspiring and established property developers.

Housing Finance’s, Project Finance unit, handles Property development activities of the firm targeting property types including: Residential market, Retail market, Office Market and Industrial market.

Housing Finance winning business model not only focuses on providing mortgages and enabling more Kenyans to own homes, but also ensures that the Company plays a pivotal role in enabling a steady supply of quality and affordable property and homes in this market.