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
Although a mortgage insurance makes it possible for you to purchase a house with as little as a 3-5% down payment, it no longer benefits you once you have the house. The insurance is basically an additional cost to the borrower for the increased risk held by the lender. It is important to track down your payments and request cancellation of the mortgage insurance premiums when the loan-to-value ratio hits 80%.
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