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Construct or Pay off debt?
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Rongla
#1 Posted : Thursday, October 02, 2014 1:10:02 AM
Rank: Member


Joined: 10/3/2008
Posts: 101
What would you do? I took out (regrettably) a construction mortgage sometime back. I have been servicing it to the tune of 300k a month ( 220k being monthly interest @16%). The rental income is 300k meaning I am left with zilch and this will be so for the next 8 years.
Where the building stands, there is still space to construct additional flats which will bring in around 200k a month.I can raise 500k a month from my wages and my other business interests. Should I try and offset the debt or should I invest first then use the increased rental income to quickly pay off the loan.
P.s A competing bank is offering to buy off the mortgage and charge me 11%interest.
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Horton
#2 Posted : Thursday, October 02, 2014 2:00:21 AM
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Joined: 8/30/2007
Posts: 1,558
Location: Nairobi
Refinance using the competing bank at 11%. Make sure it's on a reducing balance and interest rate is not variable. This will reduce your interest per month by 73k roughly by my calculations. Then borrow to put more flats.
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maka
#3 Posted : Thursday, October 02, 2014 8:23:44 AM
Rank: Elder


Joined: 4/22/2010
Posts: 11,522
Location: Nairobi
I believe there are costs involved with transferring the loan...
possunt quia posse videntur
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digitek1
#4 Posted : Thursday, October 02, 2014 8:50:04 AM
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Joined: 2/3/2010
Posts: 1,797
Location: Kenya
revalue the flats and enjoy equity release
I may be wrong..but then I could be right
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DBLyon
#5 Posted : Thursday, October 02, 2014 10:45:23 AM
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Joined: 5/28/2014
Posts: 149
Location: Nairobi
maka wrote:
I believe there are costs involved with transferring the loan...


Any costs involved in transferring the loan will be far outstripped by the monthly saving of paying off a large loan at 6% less. Let the numbers do the talking.
When you live for others' opinions, you are dead.

- Carlos Slim Helu
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DBLyon
#6 Posted : Thursday, October 02, 2014 10:49:51 AM
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Joined: 5/28/2014
Posts: 149
Location: Nairobi
digitek1 wrote:
revalue the flats and enjoy equity release


Equity release can be very useful in this case, but do it on the reduced interest rate. So a possible action could be to transfer the loan to the bank charging 11%, and then top up the loan to build more flats on the piece of land. You might even find that for the same repayment rate of 300k you now get the money for additional flats. If I had all the details I could happily do a quick financial analysis for you. smile
When you live for others' opinions, you are dead.

- Carlos Slim Helu
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Rongla
#7 Posted : Thursday, October 02, 2014 12:47:50 PM
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Joined: 10/3/2008
Posts: 101
Thanks for your views @DBLyon, Well the mortgage loan balance is kshs 14M.Repayment is @16%.
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