Thread by @mmnjug

Homeownership is a major deal for most of us. Owning a home or property is seen as the hallmark of financial achievement. The high accord with which homeownership is regarded has also spurred the growth of mortgages. - @NationAfrica

This growth has in return netted tens of thousands of Kenyans. Paying off your mortgage is not as easy as filling your mortgage application documents. That bright smile of the credit officer can change into a threatening one after a default.

Which raises the question: is taking a mortgage really worth it in Kenya?

According to George Mangs, an investment expert and the founder of the investment firm Market Cap, it is better to rent as opposed to taking a mortgage.

Mortgages in Kenya are currently averaging at about 11 to 13 percent. If you take a mortgage for 15 years, you will end up spending so much a colossal sum on a house, and thereby deny yourself a chance to create a solid capital base. - Mangs

The capital base you spend on an expensive mortgage could be invested in other vehicles with better returns that will enable you to acquire a similar or even better house and still be able to keep change without sliding into debt. - Mangs

The @AbsaKenya's home calculator shows that if you get a mortgage for a house worth Sh4M at an interest rate of 11.9% for 25 years, with a minimum deposit of Sh400,000, you will be paying Sh46,017 per month. Your total repayment for the loan will be Sh13,805,119.

Out of this, the total interest you will pay the bank will be Sh9,805,119. According to @KenyaBankers Cost of Credit tool, the same mortgage loan at an interest rate of 13% at @KCBGroup would incur a total interest of Sh8,580,621.

The total final amount will be Sh14,197,777. At @KeEquityBank, you'd pay the same total of interest as at @KCBGroup. However, the total amount you'd pay would be Sh12,982,560 at an interest rate of 13 percent.

There are several alternatives to taking a mortgage that favour renting. According to Mangs, a Sh15M house mortgaged out at the current rates will attract monthly payments of between Sh190,000 and Sh210,000 monthly.

That is a house that collects about Sh75,000 in rent monthly. If you are to rent that house and invest the difference of about Sh135,000 in a safe asset like a government bond, you will have cash flow, no debt, not to mention the liquidity factor. - Mangs

The mortgaged 'house owner' doesn't have these privileges besides the psychological benefits of 'owning a home - Mangs

Mangs adds that in the end, your home may appreciate at 10 percent per annum (which will be inclusive of 5 percent inflation, and 5 percent real interest) since it's an asset.

After 15 years, it will be worth around Sh38M. Your Sh135,000 GoK paper investment at 0.8% per month (or 9.6 per cent per year) will translate to around Sh54M at the end of 15 years. This means that you would still be able to buy the house at Sh38M and still have an extra Sh12M.

Acquiring a house may also be more of a sentimental investment. "It is easy to be trapped into debt to satisfy your psychological need to have the feeling of homeownership, and be categorised as a homeowner," says social psychologist Raphael Odaya.

However, beyond the sentimental satisfaction of owning a home, your house may not repay the amount of money you borrowed. At the same time, your homeownership priorities today might change by the time you're done paying off your mortgage.

Such a change may be compounded by age and retirement. If you take a 15-year apartment mortgage at age 45 years in Nairobi, you may no longer want to live in an apartment at 60, instead opt relocate upcountry or want to settle in a bungalow in the outskirts of Nairobi - Odaya.

If you had not taken the mortgage and instead put your money in GoK bond, you will not only have sufficient capital to put up a retirement home but also have the liquidity to sustain your retirement.

At the same time, you must consider your income and what you want to achieve during your most productive years, and whether the mortgage you want to take will allow you.

According to Mangs, you must first look at your financial position and be sure that the monthly mortgage payments are not going to dent your cash flows. "This will give you financial legroom to navigate through any investment opportunities that may come knocking.

Because the reality of mortgages is that they are financially binding contracts. They leave you so financially incapacitated that if not thought out well, you may end up owning a house but nothing else. - Mangs

Kenya Mortgage Refinance prog is a State agency program which offers cash to banks and Saccos for onward lending to aspiring homeowners.

This lending is given at an annual interest rate of 5%. The banks and Sacco's who get this cash are supposed to lend it out at a single-digit interest rate which is lower than the average mortgage market rate of 12.06 per cent.

This program gives loans to workers who make less than Sh150,000. Loans from KMRC are capped at Sh4M for Kenyans living in the Nairobi metropolitan area.

Kenyans living outside this area get a maximum of Sh3M. These loan amounts come with a repayment period of up to 20 years. According to Mangs, this will allow more people to access home credit at more affordable rates.

How Kenya's 13% mortgage rate compares with some other countries:

United States - 2.6%
United Kingdom - 3%
Canada - 2.5%
South Africa - 7%
Brazil rate - 5 and 7%

this comparison means that taking a mortgage in our country will badly dent your growth potential as an individual.

Why renting in Kenya is far much better than taking a mortgage bit.ly/3FdOc5a by @NationAfrica