Agreed Wendz with what you have said. Guarantors are used but not as an exclusive process of who should get credit as is the case with equity. Like I said before,guarantors are used in certain instances. Only in Kenya are they the end all and be all in borrowing.

In fact,we used guarantors at the very end of the process of accessing risk not first or a requirement in giving a loan!

I don't know about other banks cash positions. I know that Equity managers have orders from above. If you don't believe me,go borrow now and see what you will go through.

This is not bad or negative. It may in fact save Kenyans from taking up loans that are dangerous to them. You can call me the Sacco missionary if you like. But borrowing from a Kenyan bank at those rates is suicide. Especially for a mortgage.

We can agree to disagree but on my part,if I ever seek a Kenyan loan,I will avoid one with guarantors unless there is a mathematical reason for me to do so. I will also move to the bank that uses credit reports to gauge one's ability to pay. If you know that bank,please do share too.

The future is here so let us embrace it instead of using Neanderthal banking methods thinking that all is well.

By the way Mukiha,Islamic banks have been cushioned from the current credit crunch precisely because their mortgage lending methods were stringent and honest. For your mortgage again I say,think Islamic banking in Kenya and get a fixed mortgage loan.

haha Mukiha,you are a funny man but that is taken as an attempt at being funny...It is always a good idea to look in the horizon. We shall talk about this 'stringent lending rules' you are talking about....That made my day....'Wewe enda tu oune kama utapatiwa loan' is not an example of lending rules leave alone stringent.....I can tell you right now how much you can borrow at a certain income and your credit rating and employment history,age and expenses in any state in the USA....I went to a bank here and all they told me was 'just apply,we shall look at it.'....If that is what you call rules,then I have a lot to learn. I may be wrong but I think if a bank manager is your friend is also a consideration of lending.....Stringent my foot!

Ok Mukiha,I will stop being facetious as I believe this topic is very important especially if we are going to avoid shy locking that is lawful.
You have to stop reading Bdafrica for the reasons of the credit crunch. It was a problem that began in about 2002 thanks to poor banking rules.
A person who goes to the bank can know how much they could borrow even before they got there.
It worked until some guys at Wall Street came up with the idea of derivatives. They would re-package these mortgages and sell them to other entities. Believe me when I tell you,even your bank could have bought these derivatives. Towns and cities all over the world bought them.
They were not buying mortgages. Derivatives can be packaged so well,you would never know the base asset or investment. Heck,even my boss didn’t know what they were.
Because they were so profitable,poor lenders decided to start giving out more mortgages. So in order to do this,they would get someone who could not qualify for a traditional fixed rate mortgage and convince them to get these ARM’s.
So the 20k guy would end up with a 1 million loan which was an ARM and he was to refinance it later when property values went up. Since everyone was buying,soon there were no property buyers.
So house values started falling.
It affected everyone. Not because of bad lending practises but because of those derivatives I just mentioned. These instruments were packaged as A plus low to no risk investments so everyone got into them. Of course when people stopped paying the ARM’s these derivatives became worthless pieces of paper.
That is the credit crunch. Not this lie you are trying to spread here about using credit reports to give out loans. If you think you will get a loan in the US without a credit report,I would advise you stick in Kenya.
So in short the credit crunch came about due to:

giving out Adjustable rate mortgages to those who could not qualify for fixed rate mortgages
Selling derivatives based on these ARM’s to unsuspecting financial entities
the owner of the ARM failing to repay the loan
Then banks became more stringent in their lending coming up with all manner of excuses when you went to borrow
Please stop me when you see any of the above four criteria not affecting a Kenyan consumer.
Next think very hard about thinking that you are safe. Be very careful about the type of loan you get and the collateral your bank is asking for.

@nanfor:

I was just quoting what you wrote

Now,when you say fixed rate do you mean:

A) that the percentage rate remains constant through the life of the loan (even though the interests amounts are calculated on reducing balance)?

OR

B) that the total interest amount is calculated up-front and loaded to the loan account...then monthly installmensts are calculated from this total?

Even the SACCOs you mention as better alternatives use the 'reducing balance' method and the going rate is one percent per month...in truth,12% pa. There are banks lending at lower than this....right here in Kenya!!

The problem with option B is that you cannot do what I did with my mortgage....read the story here: http://www.stockskenya.c...x?stk=1004&top=14497

@nanfor:

You say: 'A reducing rate mortgage under option A is not a product I would even consider.'

Now let me educate you for a change:

The option A that I mentioned was: 'A) that the percentage rate remains constant through the life of the loan (even though the interests amounts are calculated on reducing balance)'

This is the best loan plan anywhere in the world! It is even better than the Sharia method!!

The point is: since you interest rate (APR = Annualised Percentage Rate) is fixed,your monthly installment will never change as long as you stick to the agreed amounts...just like the Sharia loan or the kind of loan you described.

However,this has an additional benefit: If you get some windfall,or if you get a pay rise and you are able to a small additional amount,this extra payments go towards reducing your principle balance and thereby reducing the interest amount allocated each month.

Read my story again and you will see the clear benefit...by the way that is the kind of loan I had,the interest was fixed at 15% and was calculated on a reducing balance.

If you cannot see that benefit,then I think you don't fully understand the meaning of 'reducing balance'.

In my case for example,the loan amount was Sh2.25m.

On the first month the interest was 15% divided by 12 months = 1.25% of sh2.25m = Sh28,125.

Now,the person who paid the required minimum of sh31,491 got sh28,125 going towards interest and the balance sh3,366 going to the principle. That left a loan balance of sh2,246,634.

But in my case,I paid sh40k on the first month. Of this sh28,125 went towards interest and sh11,875 towards principle....leaving a loan balance of sh2,238,125.

You can see I have a smaller loan remaining than the guy who stuck to the agreed plan...

Now on the second month,the situation changed: The standard plan interest was again 1.25% of sh2,246,634 (the remaining loan balance...that's the meaning of 'reducing balance') = sh28,083.

The guy pays sh31,491 again and sh28,083 is consumed by interest and sh3,408 goes to the principle.

In my case,the second month's interest was 1.25% of sh2,238,125 = sh27,977...notice it is sh106 smaller than that of the standard plan. and the rest to the principle.....

The difference is small at the beginning but in a few years you will be miles ahead on the principle.....by paying onle 27% extra I was going to cut the repayment period by 50%.

You cannot achieve that with the plan that you advocate nor with a Sharia loan plan. If you up your repayment by 27% you will reduce the repayment period by 27%!!!

That's the catch!!!!!!!

Now,looking at the mortgage calculators available on many American finance house websites,I am convinced that they also use the method of option A.

Thus I conclude that you are mistaken!!!!!!

The reason loans are expensive in Kenya (and I agree that they are too expensive) is that the interest rates charged are very high. It is not because of the method use to calculate the instalments!!!!

As noted by another contributor,in Japan they are paying 1%pa while in Kenya the average is 15%