Buying a house for many Kenyans is a financial commitment comparable to no other because of the burden it imposes on cash flow. For many, it is a lifetime commitment whose obligations they struggle to fulfill monthly. Most people when considering the cost of their mortgage loan, will give weight to the interest payments over the total cost of credit. However, taking into account that banks do not shoulder third-party charges may save you a months or even years in repayment.
In a bid to aid the public in breaking down the credit burdens, the Kenya Bankers Association in partnership with the Central Bank of Kenya, recently launched costofcredit.co.ke, a website that assists users to estimate the total cost of credit for any loan or mortgage.
The basic tool allows a user to select a bank and check the cost of credit for that bank. The tool further allows users to compare the cost of credit across banks which can help as a basis for decision-making. Take for instance an aspiring home owner working with a budget of KSh. 5m for a home and having a deposit of 10 per cent of the amount. Seeking a mortgage loan for the balance of KSh. 4.5 million, they may come up with the following figures from the portal, giving a comparison between the interest payments and the total cost of credit at monthly instalments of KSh. 55,985 for 240 months:
| BANK | LOAN AMOUNT |
INTEREST PAYMENTS
(KSh. ‘000’) |
TOTAL COST OF CREDIT
(KSh. ‘000’) |
MONTHLY INSTALMENTS
(KSh.) |
| KCB | 4.5m | 8,930 | 9,838 | 55,985 |
| CBA | 4.5m | 8,930 | 9,720 | 55,985 |
| NIC Bank | 4.5m | 8,930 | 9,653 | 55,985 |
| Equity Bank | 4.5m | 8,930 | 9,355 | 55,985 |
| Housing Finance | 4.5m | 8,930 | 9,347 | 55,985 |
| Consolidated Bank | 4.5m | 8,930 | 9,306 | 55,985 |
| Diamond Trust Bank | 4.5m | 8,930 | 9,306 | 55,985 |
| Stanbic Bank | 4.5m | 8,930 | 9,281 | 55,985 |
| National Bank | 4.5m | 8,930 | 9,281 | 55,985 |
| I&M Bank | 4.5m | 8,930 | 9,257 | 55,985 |
Source: costofcredit.co.ke
From the table, a borrower who takes a mortgage from NIC Bank will pay KSh. 306,000 more or at least 5 more months of repayments. Similarly, a borrower with CBA will continue to repay their loan 10 months after I &M Bank customer has completely secured his home from the mortgage liability.
It should be observed that the interest payments are constant but major variations arise from the total cost of credit for the different banks. Essentially different banks have different third-party costs which include legal fees, valuation, stamp duty and insurance and which gives the variations in the total costs of credit.
Although what costofcredit.co.ke is an estimation tool developed by the Kenya Bankers Association, prospective borrowers can use it as a planning tool to project the expected cost of a mortgage with little error. Third-party fees vary frequently and so for actual information borrowers are advised to contact the specific banks. The banks should provide a Total Cost of Credit breakdown as well as the Loan Repayment Schedule, as required by the Central Bank.
There are currently 45 institutions offering mortgages in Kenya, and for a mortgage seeker, navigating through all this information manually is definitely costly. But with the internet, now a mortgage seeker has the privilege to appreciate all this information in one place at the press of a button and the slide of a finger. So before you take that mortgage loan, go ahead and check it out on costofcredit.co.ke.
