Mortgages in Kenya fall under two types:
1. FIXED RATE MORTGAGES
The borrower owes a percentage of the loan as interest. This amount never changes and remains constant over the life of the loan.
2. VARIABLE/ADJUSTABLE RATE MORTGAGES
In this type of loan, changes in the credit market are reflected in the repayment rates. Equal repayments are made on a reducing balance. Part of the interest rate risk is transferred from the lender to the borrower. Variable rate mortgages are widely used where fixed rate funding is difficult to obtain or prohibitively expensive.
There are several factors that broadly define the characteristics of mortgages in Kenya and elsewhere globally. These may include;
This is what banks gain from the loan from the repayments made. Interest may be fixed over the life of the loan or it may be variable, changing at certain predetermined periods. It may rise or it may fall, depending on existing market conditions.
• PREPAID AMOUNTS
Some lenders will limit or restrict prepayment of part or the entire loan. If the borrower decides to prepay, then he may also pay a penalty to the lender for the prepayment.|
• AMOUNT AND FREQUENCY OF PAYMENT
In some cases, lenders may offer the borrower an option to increase or decrease the amount paid, without incurring penalties. The amount paid per period is variable.
• PERIOD OF THE LOAN
This refers to the time period the loan is lent out for. The borrower may be required to pay the entire amount after that lapsed time period. He may also be required to pay a certain amount at the end of some predetermined period.