Get that Mortgage and Live Like a king

A mortgage can be described as a loan that a bank advances to a client for purposes of purchasing land or property. A mortgage may also be used for construction, renovation, or improvement of existing property. The bank takes the property purchased with the loan as security for the borrowing. This is the most common way of financing residential houses in many countries.

Although most commercial banks in the country offer mortgage loans as an option for their borrowing customers, mortgages in Uganda are not very popular. Getting a mortgage, however, will not only help you save but live in a comfortable house. Banks design mortgage loans to suit the type of customer they want to attract.

Despite the packaging, the key elements of the mortgage one has to look out for are the interest calculation type, the term or repayment period, the prepayment to be made, and the payment amount or frequency.

The ‘term’ of the mortgage refers to the repayment period. This may range from 10 to 20 years for residential houses.

The interest on a mortgage may be fixed or variable. A fixed interest rate means that you pay interest at a rate that is agreed on at the start. This rate will not be subject to change for the whole period of the mortgage loan. Although a customer may prefer to have this kind of interest charge on his mortgage, fixed rates are difficult for the bank to set since they involve making many guesses over a long period. When set, such rates are usually high and will most likely harm the customer.

Variable interest rates are more common. In this case, the interest charged on your mortgage at any time will depend on the prevailing interest rates in the market. The repayment to be made is your own cash contribution to the total cost of the property.

Banks will request that you have 30% of the total cost of the property in cash. This means that the mortgage will be 70% value of the house.

The repayment amount depends on the size of the loan that one accesses. Banks often request that monthly equal instalments are made. Payment of the first instalment is due on the first anniversary day of the month following the release of the loan. Other payments follow the same pattern. Although the mortgage loan seems a complex process that involves verification of certificates of land titles and valuation of property which are both time-consuming and expensive, getting a mortgage housing loan is worth all the effort.

Consider the case of Mathew, a banker who took out a mortgage loan for Shs.50M in 2003 to be paid over a period of 10 years.

The property, a residential house in Ntinda was almost complete. He did a few finishing touches and sold it off in 2007 for Shs.70M! This means that in a space of four years, the property gained value by Shs 40M. If you put into consideration that Mathew was owning this house during that time (had comfort), did not pay any rent (was saving), made repayment on the loan (reduced on the debt), it is easy to see that Mathew made a wise decision to get a mortgage in the first place.

According to him, the value of the finishing he did on the house was only Shs.30M to the bank, and was able to buy a smaller house in which he lives now. Patrick’s story is even more interesting. He bought his house at Shs.75M in 2002. He sold the same house this year for Shs.150M.