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Mortgage uptake in Kenya is unsurprisingly low, only about 24,000 in the entire country. This is despite the fact that almost all commercial banks in Kenya provide mortgage facilities. In contrast, most Kenyans build out-of-pocket incrementally, or use groups like Saccos or other financial intermediaries. While some make the point against mortgages by referring to the traditionally high interest rates, others think the real expensive option is cash. So which way should you go?

Before the advent of interest cap there was a marked difference in interest rates charged across the financial sector. This had let two institutions to have an upper hand in the issuance of mortgage facilities, KCB and Housing Finance Bank. However, at current interest capped rates, you can walk into any back and get a mortgage.

Experts warn that if the interest cap is lifted there could be massive adjustments in the market place where a difference of two digits in interest charged may tilt the market towards the traditional mortgage lenders, bringing the market back to base.

RelatedThe process of getting a mortgage in Kenya

One way of looking at the mortgage-cash debate is to consider the opportunity cost of capital. Anytime capital is tied up without production there is an automatic loss called opportunity cost. This is the main reason mortgages are popular with some who view it as an instrument of financial prudence.

Most people may only look at the amount of interest they pay to the bank without considering the amount of cash flow they lose as a result of making a lump sum cash payment when purchasing property. Furthermore, the benefits derived from the present value of future cash flows naturally outweigh the interest charges levied on the loan.

For instance, consider buying a Ksh. 15m house in a choice location now but you haven’t paid the whole amount yet i.e. on mortgage. The only reason you could be enjoying that beautiful address in a leafy suburb chapter is because you have a promise to pay a paltry Ksh. 162,507 monthly going forward for 25 years.

Also ReadWhat To Do Before You Take The Mortgage

Now if we were to wait for you to put together the Ksh. 15m in the next say 10 years, chances are that the same house will be going for double the price then and you will not have benefitted along the way.

This is not to say that every other asset should be acquired using borrowed money. For it to work, the benefits of acquiring the property now and not later should outweigh the cost of money borrowed. The fact that property is an appreciating asset makes it even more worthwhile.

The general perception is that a mortgage is expensive, but in comparison to what? Renting? Indeed mortgages can be expensive compared to renting but the mortgage owner gets to own the property in the long run while the rent payer still gets to raise money when they want to purchase/build the property unless they choose to remain perpetual renters.

So for a fair comparison, is it better to take a mortgage than to use my own money? Well, do the math. If you use your own cash, what could you be foregoing as a result of spending Ksh. 15m or thereabouts constructing the house yourself?

While it may be the case that you spend less when you construct, in terms of hard cash, people rarely go beyond the cost of land, material and labour to quantify other costs like time to delivery, effort and ensuring quality of final product.

Disregarding emotional attachments to such decisions, experts advice that the best approach is to follow the path of least resistance.

This Article is adopted from Kilundo Mbithi, a Registered Agent and Real Estate Consultant