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[Kenya] Homeowners turn to mortgage insurance to cushion themselves from eventualities

Mortgage holders in Kenya are embracing insurance on their mortgages to cushion themselves and their families should they fail to meet the payments in case of an eventuality, as more families now embrace mortgages as a way of owning homes.

A few years ago the number of Kenyans owning homes through mortgages was dismal thanks to interest rates that spiraled out of control after the near recession. From the traditional 12 percent, interest on mortgages shot up to 30 percent which saw many holders lose their homes. But with the interest rate environment having returned to normalcy, at least to a great extent more Kenyans are now preferring to purchase homes through mortgages. According to The Mortgage Company, 50 per cent to 70 per cent of all homebuyers in the country take mortgages. These, the company notes, are mainly middle-class Kenyans earning $1000 and above, and can afford a house that costs $50000 and above.

Stephen Omengo, an associate director and senior valuer at Tysons Limited, says most home seekers “buy through the margin”, meaning they can afford a deposit and arrange a mortgage. The Mortgage Company says the growth of the country’s middle-class has seen growth of mortgage uptake for the last few years.

But even with the rise in mortgage uptake, worries still abound on what this could mean to the holder's dependent should an eventuality happen. Does that mean they will be out in the streets? Will the house be auctioned to meet the cost of defaulting? This concerns have now birthed a unique insurance product tailored specifically for mortgage holders. Dubbed mortgage insurance, the product is 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 is 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,” said Housing Finance.

Within the Mortgage insurance, are different packages depending on a client's anticipated needs. For example the privatemortgage insurance is fit for borrowers struggling with raising a down payment that is at least 20 percent of the home’ssale price. Because the lender is taking a higher risk due to buyer’s lower initial equity, private mortgage insurance paysthe amount of the outstanding loan if and when default occurs.

Then there is a separate mortgage protection plan for all borrowers and which is meant to directly protect them should theyfail to make the agreed monthly payments. Homeowners who have families that consist of several dependents might wantto consider mortgage life insurance.
Certain banks like KCB's S&L mortgage unit have introduced other unique covers retrenchment/redundancy cover whichtakes care of the holder's mortgage repayment in case they are laid off.

www.tmcafrica.com

ke.kcbbankgroup.com

 

 

 

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