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From the blog

Should i take a mortgage or not?

Side A


  1. A fixed interest rate of 14% PA for 20 years.
  2. 3 bedroom flat in Kikuyu, Pangani, Mombasa Road or Thika road.Price 6 Million
  3. Deposit 20% of 6Million = 1,200,000
  4. Mortgage of:4,800,000
  5. Total Monthly Payments:59,689
  6. Total Repayment: (59,689 * 12 months per year * 20 years) = 14,325,360
  7. Total Charge for credit (Interest) :(14,325,360 – 4,800,000) = 9,525,360


Cost Summary

Table 1

Deposit 20% deposit of the property value
Stamp duty 4% of the property
Property insurance Based on value of the property.

See chapter on home insurance

Mortgage life policy Based on outstanding loan amount.

See chapter on home insurance

Valuation fees Depends on property value.

See Chapter on Importance of valuation.

Legal fees Depends on loan amount.
Mortgage Commission Fee 1.5 % of the loan amount advanced.


Assuming that the cost summary is about 10% of the amount borrowed (the 10% is a very conservative percentage), then we can say that before you decide to take up a mortgage you will need to have another like 480,000 to process the mortgage.


Total costs.

Table 2

Item Amount in Kshs
Deposit 20% of 6 Million 1,200,000
Total Repayment

Monthly payments 59,689

12 months in 1 year

Loan term 20 years


59,689 * 12 * 20 =







Other costs (shown in table 1)       480,000

Total costs after 20 years






Assuming that you rent the house out for Kshs 30,000 per month (exclusive of service charge) and increase the rent by 10% every 4 years.


Table 3

Year Rent per month





No of months

per year




No of years where the

tenant will pay the rent indicated in (a)


Total rent receivable





1-4 30,000 12 4 1,440,000
5-8 33,000 12 4 1,584,000
9-12 36,000 12 4 1,728,000
13-16 40,000 12 4 1,920,000
17-20 44,000 12 4 2,112,000
Total rent receivable 8,784,000


Assume that the service charge is only able to cater for internal repairs and that external repairs and maintenance of the property will cost say 784,000 meaning that the net rent is 8 Million


Capital appreciation

Assuming that the house appreciates at a rate of  5% consistently every year. Then the value will be:


P(1+r)n   =  6 (1+0.05)20 = 6(1.05) 20 = 2.65 * 6 = 15.919 say 16Million


Therefore the value of the property will have gone up to 16M and you will have earned Kshs 8million in rent over the 20 year period.


The total return from the house will be

16 Million from capital appreciation   +  8 million in total net rent = 24 Million.


This is definitely higher than the amount you put in mortgage payments over the 20 years and the other costs (calculated in table 2 above) which gives us a total of 16,005,360 say 16 Million.

The total “profit” that you make from this mortgage in the 20 years is therefore

24 Million – 16 Million = 8 Million.

This translates to a return of 50% in 20 years or 2.5% per year.



  • Make sure the house is not over priced. See topic on “ Is that house overpriced”.
  • This calculation is based on the assumption that the interest rate does not change in the 20 years. Some fixed rate mortgages change upwards every 5 years.
  • The return could be higher if the rents are higher than what we have used.
  • Even if you were to occupy the house, the rent you forego could be used for these workings.
  • That you pay the mortgage on time therefore there are no penalties for late payment.
  •  If you paid lump sum amounts from time to time or you paid a higher deposit, you will reduce the interest you pay on the mortgage will be lesser.

The book, “The ABC of REAL estate investment in Kenya” will make you a wiser investor.

Order a copy of the book by sending an email to

Kariùki Wawerù

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