Charting the Course to Property Ownership: Mortgages vs. Personal Loans 


 Making informed decisions aligned with your financial goals involves a comprehensive understanding of the distinctions between mortgages and personal loans. This exploration aims to shed light on these differences, aiding you in choosing the most suitable option for your property investment. 

Understanding Mortgages and Personal Loans:

Mortgages, referred to as legal charges under Kenyan law, are tailor-made for property purchases. Secured against the property, they offer lower interest rates (averaging 13-16%) and extended repayment terms (typically 15-30 years). These substantial loans, often covering the entire purchase price, are governed by a robust legal framework outlined in the Land Act and the Constitution. This framework safeguards both borrowers and lenders, establishing rights and obligations, including the borrower’s right to redeem their property and the lender’s right to enforce the charge in case of default. The foreclosure process, involving court proceedings, ensures due process and balances creditor protection with homeowner rights. While interest rates may fluctuate based on economic conditions, borrowers are shielded from unfair lending practices by the Central Bank of Kenya and other regulatory bodies. Additionally, tax implications like stamp duty and potential capital gains must be considered.  

Personal loans, governed by the Banking Act and Central Bank guidelines, offer a versatile approach. Unlike mortgages, they are unsecured, meaning your property is not directly at risk if you default. However, this freedom comes with higher interest rates (averaging 18-25%) and shorter repayment terms (1-7 years). These smaller loans, generally designed for personal use or minor expenses, provide flexibility regarding the property’s condition, unlike mortgages that often have stricter eligibility requirements. However, be aware of the higher overall costs due to the shorter terms and steeper interest rates. 


Why Choose a Personal Loan Over a Mortgage?

While unconventional, personal loans present advantages such as a quicker and less complex process, ideal for urgent purchases. They offer flexibility regarding property conditions and are suitable for lower-cost properties. However, the trade-off involves higher overall costs due to increased interest rates and shorter terms. 

As highlighted in our interview with Mr. Johnstone Oltetia, CEO and Managing Director at the Kenya Mortgage Refinance Company (January 2023 CMPD issue), mortgage refinancing offers the potential for lower interest rates, reduced monthly payments, adjusted loan terms, debt consolidation, or accessing home equity for significant expenses. Key features of this option encompass loans of up to 90% of the purchase price or valuation (whichever is lower), with a repayment period extending up to 20 years. A dedicated fulfilment centre is in place to address a spectrum of property-related needs. Distinct benefits include a concessional interest rate of 9.5%, a 20-year loan term, rapid loan processing, and the assurance of a flexible, experienced, and reliable staff. The dedicated fulfilment centre further underscores the commitment to providing comprehensive property solutions. This strategy allows homeowners to optimize mortgage conditions based on personal financial needs or market changes. 

Assessing factors such as financial health, property type, and urgency is crucial. Credit score, income, property eligibility for a mortgage, and long-term affordability play significant roles. Thorough research, financial advice, and understanding the total loan cost, including interest and fees, are essential in making an informed decision. 

Consider scenarios where a personal loan facilitates the purchase and gradual repair of a fixer-upper property or enables a faster transaction in a competitive market, securing a dream home. 


No one-size-fits-all solution exists in property financing. Your choice between a mortgage and a personal loan depends on your financial situation, property type, and long-term goals. Understanding each option’s pros and cons, coupled with consideration of unique circumstances, empowers you to make a well-informed decision. 



The information provided is for general informational purposes only and should not be construed as legal advice. Consult with a qualified legal professional for tailored legal counsel based on your specific circumstances. 

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