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Mortgage Loans
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stocksguru
#21 Posted : Thursday, December 15, 2011 11:54:33 AM
Rank: Member

Joined: 4/19/2007
Posts: 68
It is essential to differentiate between a home buyer and an investor.

To a home buyer the decision to purchase is more emotional than rational and they have no interest in return on investment or any other ratio. See this interesting article that brings out the message http://quadrantshift.co..../a-letter-to-my-banker.

On the other hand is the investor who uses something called capitalisation to determine economic viability of the property.

To the investor a property with a gross rental income of 20,000/- would at the current interest rate have a capitalised value of 960,000/-. Even if you bought the house cash (5M) the return is only 4.5% you are better giving Uhuru your money at 22%.


Abby wrote:
Hi Gentelemen,

Over the weekend, I met officials of Housing Finance in Kitengela where they have opened a shop.

They showed me their mortage rates, current ones. A shocker: you borrow 5M at 97k monthly for 20 years, yet that house can only fetch 20k monthly rent.

Is mortage loan under these conditions of any use really! We are in tough times.

Regards
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Cde Monomotapa
#22 Posted : Thursday, December 15, 2011 12:31:22 PM
Rank: Chief

Joined: 1/13/2011
Posts: 5,964
stocksguru wrote:
It is essential to differentiate between a home buyer and an investor.

To a home buyer the decision to purchase is more emotional than rational and they have no interest in return on investment or any other ratio. See this interesting article that brings out the message http://quadrantshift.co..../a-letter-to-my-banker.

On the other hand is the investor who uses something called capitalisation to determine economic viability of the property.

To the investor a property with a gross rental income of 20,000/- would at the current interest rate have a capitalised value of 960,000/-. Even if you bought the house cash (5M) the return is only 4.5% you are better giving Uhuru your money at 22%.


Abby wrote:
Hi Gentelemen,

Over the weekend, I met officials of Housing Finance in Kitengela where they have opened a shop.

They showed me their mortage rates, current ones. A shocker: you borrow 5M at 97k monthly for 20 years, yet that house can only fetch 20k monthly rent.

Is mortage loan under these conditions of any use really! We are in tough times.

Regards


@sguru..I concur with you. Kwanza the wifey holds a gun to ur head. smile
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mwekez@ji
#23 Posted : Thursday, December 15, 2011 6:45:34 PM
Rank: Chief

Joined: 5/31/2011
Posts: 5,121
mzeekijana wrote:
... In the place I am one can get a loan at a rate of 5% ...


Which place?
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VituVingiSana
#24 Posted : Thursday, December 15, 2011 6:52:29 PM
Rank: Chief

Joined: 1/3/2007
Posts: 18,356
Location: Nairobi
mwekez@ji wrote:
mzeekijana wrote:
... In the place I am one can get a loan at a rate of 5% ...


Which place?

GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%...
Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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GGK
#25 Posted : Thursday, December 15, 2011 7:18:07 PM
Rank: Member

Joined: 11/21/2006
Posts: 608
Location: Ruiru
stocksguru wrote:

To the investor a property with a gross rental income of 20,000/- would at the current interest rate have a capitalised value of 960,000/-. Even if you bought the house cash (5M) the return is only 4.5% you are better giving Uhuru your money at 22%.


Very true, am still mad at my 5m home investment that brings nothing whereas I know I can get decent accommodation @30k when my 5m can easily make 20%

Home ownership is informed by so many stakeholders such that nothing makes sense at all in the end. Parents wants to see you own a home. The gang up with opposition within your household to push ideas through the throat.
"..I am because we are. "― Ubuntu, Umtu,
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Gordon Gekko
#26 Posted : Thursday, December 15, 2011 7:26:41 PM
Rank: Elder

Joined: 5/27/2008
Posts: 3,760
Remember when you get a 5% loan you are liable to pay Fringe Benefit Tax.
FBT is computed as follows:
KRA announces every three months a deemed interest rate, currently I think it is 11%

The difference between the deemed rate (11%) and the rate your employer gives you (5%) is applied to your loan. Say if your loan is ksh 2M, the deemed interest for the month is 6%(11 - 5) of ksh 2M divide by 12 months = ksh 10,000. The 10K is assumed to be a deemed income and you pay 30% tax (ksh 3,000).

Your employer is expected to deduct the 3K and remit it to KRA together with your normal PAYE. Strictly speaking this FBT should be borne by the employer and not you, but I'm not aware of any employer who bears this expense.
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  | | Edit by user: Thursday, December 15, 2011 7:32 PM | Reason: Not specified
Drunkard
#27 Posted : Thursday, December 15, 2011 8:33:26 PM
Rank: User

Joined: 5/3/2011
Posts: 559
Gordon Gekko wrote:
@bwenyenye, I'm sorry I fail to get your point. Mara the banking sector is collapsing, mara it's only the mortgage sector that is collapsing, mara mortgages are the lowest risk loans (meaning that even the mortgage sector collapsing is a remote possibility)Pray

@Abby, true the first month interest is 100k, meaning the loan will never end with a repayment of 97k .The mortgage calculator shows a repayment of 103k, this will service the principal at 2.9k in the first month.

This interest regime is a short term phenomena which will pass. People, mortgages are good loans, as they secure an appreciating asset. Just hold back your buying decision until the storm passes.



Mortgages are the worst loans, if one is buying for his/her family thats is ok but if someone is trying to make money off signing up for a mortgage, you need to think twice. Look at the terms, mortgage holder is the borrower, the bank is the investor!
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mwekez@ji
#28 Posted : Tuesday, December 20, 2011 12:02:02 PM
Rank: Chief

Joined: 5/31/2011
Posts: 5,121
VituVingiSana wrote:
mwekez@ji wrote:
mzeekijana wrote:
... In the place I am one can get a loan at a rate of 5% ...


Which place?

GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%...


Thx VVS. I was thinking mzeekijana was talking of a place that we could have access
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www.eastafricanized.com
#29 Posted : Tuesday, December 20, 2011 12:43:20 PM
Rank: Member

Joined: 2/27/2010
Posts: 109
Location: NAIROBI
So now am totally lost. Which one should somebody go for between
1) Take a loan to build your own?
2) Take a loan and buy off plan?
3) Take a loan and buy?
4) Take a mortgage?
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VituVingiSana
#30 Posted : Tuesday, December 20, 2011 12:45:47 PM
Rank: Chief

Joined: 1/3/2007
Posts: 18,356
Location: Nairobi
mwekez@ji wrote:
VituVingiSana wrote:
mwekez@ji wrote:
mzeekijana wrote:
... In the place I am one can get a loan at a rate of 5% ...


Which place?

GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%...


Thx VVS. I was thinking mzeekijana was talking of a place that we could have access
He did specify... "In the place I am..."
Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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