Virtually all mortgage financing arrangements will require you to put in some equity, with the financing institution funding a portion of the value of your new home. Most will require that you save up for the required down payment with them, which is usually 15% to 30% of the purchase price. Paying more up-front works better in the long run, reducing the costs of the mortgage. These costs will include fees for appraisal, professional valuation and legal services. You may also pay term deposits and various statutory fees for any transfers, charges and/or registrations to take place. As a rule of thumb, the combined legal and stamp duties work out to about 10% of the purchase price of your new home. These payments are all made at the processing stage of the loan and are not refundable if you later withdraw the application or the financing institution rejects it. Your monthly repayments will also typically include the cost of insurance policies on the property offered as security for the loan and on your life.
To be sure that you get the best loan possible:
- Compare mortgage terms from three to five different lenders before deciding which of them is best for you.
- Don't focus solely on the interest rate. Getting a low rate is important but you may not benefit from it if you have to pay too much up-front and in the way of other fees.
- Take a look at the Valuers' Act, the Advocates Act and Finance Act if you want to get a heads-up on valuation, legal and statutory fees respectively.
- Thin about how long you will keep the loan if you are going to move in a few years consider an adjustable-rate mortgage since you may be able to sell the house before the rate gets too high. If you plan to stay longer, a fixed-rate mortgage may be an attractive option because your rate stays fixed for the term of the loan. If no fixed-rate mortgage is available for a loan the size you are considering, consider paying off your loan sooner than the maximum term limit.
- Find out if your employer or SACCO sponsors a group scheme that subsidizes the borrowing rates by financing a portion or the entire loan for members of the group.
Fred Mbugua
East African Standard, Wednesday, February 11, 2004
The views and conclusions expressed in this article are those of the
author and do not necessarily reflect those of propertykenya.com
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