How mortgage finance works

You have been planning to build a residential house for the past three years. However, every time you want to start on the project, you discover that your savings are not enough. To make matters worse, whenever you save for the house, something comes up and you use the cash, a situation that has crippled your plans. Financing a housing project is one of the most expensive ventures, whether one chooses to build one or buy a ready-to-occupy property, according to real estate experts. Though the move is smart compared to paying rent for an apartment or a decent residential home, one must have enough money and a stable source of income to undertake the project. That’s why experts advise potential home developers to plan in advance to ensure the project does not stall mid-way. Julius Zigama, who is in charge of sales at I&M Bank, Remera branch, says there are many funding options given by banks for those that want to develop their dream homes. He says besides saving for your dream home, one can acquire a mortgage loan to buy or build a house. Zigame notes that most of the mortgage loans offered by local banks have attractive repayment periods of up to 20 years, with affordable interest rates. “Only patience is needed for one turn their dreams to reality...one can get a mortgage to buy their dream house. Such a loan usually attracts 15.5 per cent interest per annum and is payable in a period of 20 years,” he says. However, one can get an extension or they can choose to repay the mortgage in a short period. Though it is always advisable to get a long loan repayment schedule, he adds. Those who have already started developing their properties, can easily secure a home construction loan. “For corporates, you get such a loan basing on your net salary, and you can repay it within 15 or 20 years, depending on your salary,” he says. Experts say developers who own land or have started on their projects and have house shells stand better chances of getting funding from banks. “In such cases, the banks are willing to give money to people to complete their homes, if they have a stable source of income. However, one should also have a portion of the required money so that the bank provides the remaining part,” they say. To secure a home equity loan, one should have a house that they want to capitalise. In this case, the bank gives you 75 per cent value of the house at a 15.5 per cent interest per annum, payable in 15 years. Generally, one can get a mortgage at between 14 to 17 per cent, depending on your saving history or if you are a good borrower, have a steady job and good security. The market rate for other types of loans is at 17.5 per cent, on average. Godfrey Rwanyarare, the in-charge of mortgage finance at Bank of Kigali, says that with good planning and clear repayment plan, one can secure a construction mortgage loan to complete their home. “You don’t necessarily have to be earning a lot of money, what is essential is a good repayment plan, stable source of income and collateral,” he says. Why you should go for mortgages Experts say mortgage finance usually attracts low interest compared to other loan packages and is also payable over a long period of time. This makes mortgages more flexible and affordable for most people. The long repayment period guarantees one to get the amount of money apply they need to fund the project. How to manage your mortgages Enan Hariyambere, an architect for the City of Kigali, says mortgages, like any other loans are debts owed to banks. Therefore, the faster you pay it off by increasing monthly payments the better. Before you apply for the loan, ensure you have a stable source of income to service the loan. This way, the construction project go on without facing challenges of unfinished projects, Hariyambere advises. Watch out Though mortgage loans attract relatively low interest rates, experts advise potential home owners to save for the project to ease on the loan burden. This also helps them to invest in other income-generating activities and accumulate more wealth to improve their financial health instead of depending on debt. Most of the time, financial institutions woo clients with attractive loan products, but never tell of the low side of such mortgages, especially for low-income earner. Therefore, one must be on the watch out and also task the salespeople to explain the products fully to avoid falling into a debt trap that will affect your lifestyle.

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How mortgage finance works