Prime
A mortgage can help you achieve your dream of owning a house
Housing units at Platinum Apartments In Najjera (above) and a house in a Kampala surburb. Whether you are interested in buying a house or building, a mortgage can sort you out safely . Photo by Ismail kezaala
In many ways, acquiring a mortgage is a wiser long-term solution for acquiring a home. It is partly like paying rent every month, but for a house that will eventually be fully yours.
Twenty five years ago, Isaac Mwije embarked on a life-time achievement of building his house. Just like many do, his immediate source of capital was the little savings he had of Shs1m.
Along the way, life became difficult, Mwije was not sure when he would finish constructing his dream house as work at the site had stalled.
One day, after seeing him struggle with the construction, his schoolmate working with Housing Finance Bank, advised him to take up a mortgage.
“My friend took me through the process how to sign up for a mortgage. Since I had a stable job, repayment was easy and flexible,” Mwije remembers.
Since then, Mwije has never looked back. Mwije who was dealing in a furniture business then, has since paid back the initial mortgage of Shs15m. He is now servicing five more mortgages which he used to establish rentals.
“I have now fully gone into real estate development and all the houses I have built I used mortgage loans. I am soon starting the construction of a school and later a hotel,” He says.
While Mwije may be smiling, the mere mention of a mortgage/loan tfrightens many Ugandan, especially when the main reason is to build a home.
One would rather go through the hard way of emptying their savings than take up a mortgage-to many it’s a taboo!
In simpler terms a mortgage is a long term loan used to finance purchase or construction of a real estate property. Once one has decided to own a property with a mortgage, it is important to shop around for a mortgage provider with most favorable terms.
Taking a mortgage is probably one of those decisions one has to mull over since it involves large amounts and runs for many years.
Getting started
Here is what one needs to get started with acquiring their mortgage.
Before taking a mortgage, one’s income is an important consideration. Experts say your salary must be enough to pay the mortgage installment and leave one with at least 50 per cent of their income.
Identify the house
Then identify a house that you would like to buy, assesses its value using professional quality surveyors.
Location
Know the current and future property value. Here, like the old adage goes “location, location, location” is important.
One then only needs to identify property have an indicative valuation and sale agreement then apply for their mortgage loan.
Procedure
“Application for mortgage requires considerable paperwork and documentation and therefore some good preparation is needed before approaching the lender,” David Dansor Ninyikiriza Manager Mortgages at Housing Finance Bank explains.
After deciding on the lender, pick an application form which asks for detailed information about you, your employment record the property you want to purchase or build.
You will need to attach documentation pertaining to the property and proof of your income stream and stability. Common documents include: Salary or business income confirmation, bank statements, business records and ownership certificates, copy of land title, approved plans and purchase agreement.
Many banks fund up to 80 per cent of the amount that the seller of the house is asking. Through its legal advisors, the bank will have you sign a mortgage deed; verify that the property is not encumbered.
Then you do the transfer through a process known as security perfection. You then pay the seller, and automatically you own a house.
Timothy Kiyimba, the head of personal loans/residential mortgages assures: “All this can happen in as little as seven days depending on how long the security perfection takes.”.
For construction
Supposing you have land and want to construct a house; here the individual only owns bare land and applies for a mortgage to construct a house professionally designed as they wish within their means.
Experts say one will go through a similar process, but the money is disbursed by the bank in portions as construction happens and after stage verification of work is done by quality surveyors.
Owing to the availability of funding for the entire project, the house will be complete as soon as the hired constructor can complete it – say six months or less.
Individuals that have partially constructed their house to a phase where it has all four walls and a roof (shell) one can take a completion mortgage. With a process similar to that for the construction mortgage, their house will be complete as soon as the hired constructor can complete it.
Mortgage types
There are various types of mortgages available from the several financial institutions like Housing Finance Bank, Standard Chartered Bank, Stanbic Bank, Dfcu Bank and Centenary Bank, among others.
Experts say the types depend on one’s needs. The reason one takes a mortgage; may be to purchase a house, construct a house from bare land or take to complete a house shell one had initially started.
One can even do equity release and take up a mortgage to fund other activity.
“The purpose of the loan and type of property determines the type of the loan one has to apply for,” Ninyikiriza adds.
However, the major categories are residential and commercial mortgages, where the property is to be used as residence or for income producing respectively.
Under residential mortgages one can use the property for own occupation or for rental purposes such as single units and condominiums.
Commercial mortgages; include all income producing properties such as commercial properties and multi-unit rental apartments.
According to Ninyikiriza, the type of mortgage can also be for the purpose such as construction, purchase, refinance, improvement, expansion and even equity release mortgages.
Duration
The mortgage can be taken for up to 25 years depending on the bank and mortgage. This means that the repayments can be spread out evenly to enable you to afford the monthly repayments.
“For first home owners, taking mortgage means you stop paying rent immediately. Yet someone who is constructing a house using savings or smaller unsecured loans is going to pay rent whilst doing this”, Kiyimba explains.
Benefits
Experts say the immediate benefit of taking up a mortgage is time. One starts paying for it right away.
Research shows that as people’s incomes grow, so do their lifestyle expenses. So, taking a mortgage instills a discipline of spending on solid investments.
“According to Knight Frank, the yield on real estate in Uganda is 10 – 13 per cent whilst the capital gain in prime areas is up to 20 per annum presently”, Kiyimba shares .
The mortgage by French definition is a French Law term meaning “death contract”, meaning that the pledge ends (dies) when either the obligation is fulfilled or the property is taken through foreclosure.
However, if the repayment amount is close to the amount payable as rent, one is better off paying towards ownership of their own home than losing the money in a rent “abyss”. Not to mention the stress from a landlord for three months’ rent up front.
Though the interest rates in Uganda are relatively high, owing to the loan term tenor of a mortgage loan, as the economy grows, the rates are likely to fall whilst the value of property bought appreciates.
This means for example on a Shs200m loan taken now for a property in Naalya; whilst the outstanding principal reduces, the value of the property may double within five to ten years. Even in a worst case scenario where interest rates increase one would still be able to increase their pre-mortgage net worth in the event of foreclosure.
