Turn your property into cash

Mortgage Vs Equity Release Loan. Equity release is a way of turning property into cash and is becoming an increasingly attractive option for older homeowners. The schemes can help to pay for a new car, a holiday, home improvements or simply provide extra income.

The property market in Uganda is growing. As a result financial institutions have developed packages to meet the needs of the market through financing. For someone whose only asset is your home, there is the Equity Release Loan.

It is a way of unlocking the value of your property without having to sell it off. Equity Release Loan means releasing equity in a real estate property owned. When you have property, you have 100 per cent equity in that property.

According to Ms Gloria Kunihira, the Loans Consultant at Stanbic Bank, in order for one to qualify for the loan, one must demonstrate a reliable source of income, either through a salary or a business. This then is compared with the kind of worth you would like to release from your home and it is processed. You can borrow up to 70 per cent of property value and the minimum amount you can borrow is Shs30 million.

Case scenario
Taking a scenario of someone who would like to borrow Shs30 million, the minimum amount one can borrow from Stanbic Bank, if a salaried employee, is Shs1 million per month and for a business person, your business should be earning a minimum of Shs6 million per month.

With a maximum repayment period of 20 years, one would have to pay Shs497,000 per month. For most banks, though, there are a few other payments that you have to make before the loan is approved. These include: Insurance fee, which at Stanbic stands at 0.02 per cent of property value per year.
Other charges include an application fee of 0.25 per cent of loan amount or a minimum of Shs200, 000, in the case of Housing Finance Bank, and insurance.

The only bank so far in the market that does not charge application fees is Standard Chartered Bank, according to their website. But that is according to the banks, which are selling a product.

However, as a consumer who is going to bear the responsibility of a 21 year old financial engagement, you need to learn a lot more than what is provided at the customer care desk. Several overlapping fees must be borne in mind.

There is always a title search fee to verify ownership of the property as well as a valuation and sometimes inspection fee which differ depending on location of property (in Kampala, according to Housing Finance Bank, it is Shs 275,000) as well as opening of boundary fees which may range from Shs150,000 again depending on location of property.

Other professional fees may include mortgage registration fees, amounting to Shs295,000 according to Housing Finance Bank as well as Transfer and Mortgage registration at Shs413,000.Some banks may list these in the information pack they give the client, but one needs to find these even where not mentioned and compare or shop around for the best deal.

Currently in the Ugandan market, the banks that offer this kind of loan facility are Housing Finance Bank, Stanbic Bank, KCB bank, Barclays Bank and Standard Chartered Bank. More banks, however, are entering the mortgage sector and it is hoped that the rates and terms will get more competitive as more players enter the market.

Mortgage or not?
A mortgage is a loan secured by a property/house and paid in instalments over a set period of time. The mortgage secures your promise that the money borrowed will be repaid. For most of us, a mortgage is the largest and most serious financial obligation we ever make.

There are many different types of mortgages, each with its own advantages and disadvantages, it is very important that you do your research. Remember that many people are impacted by predatory lenders and given mortgages that they cannot sustain.

Understanding the differences in mortgages will enable you to choose the right mortgage for your financial situation and housing goals. Be an educated consumer!

This is a facility designed to enable property owners to release the equity in their properties to get cash so as to improve their liquidity position, such as build a new house, start another business or pay your children’s fees.

Just like any other loan facility, this is just another way to meet one’s financial needs, especially people whose only asset is their house.

It could be an opportunity to free some cash on your residential property. As long as you have examined the full picture, it is a good loan facility.

However, one needs to observe financial discipline when they borrow. If possible, one should pay outstanding fees separately so they are not included in the loaned amount. If you do, they will be liable to interest and you will end up paying much more.

Most financial institutions will not give mortgage to someone above 65 years of age, and total amounts differ: Stanbic Bank’s maximum is Shs400 million, Barclays’ is Shs500 million.

Going back to an averages employee however who would like to borrow Shs30 million with salary of upto Shs1.2 million, one needs to note that the rate of 20 per cent per annum by the end of the 20 years one would have paid back Shs119 million.

You may also need to know that in case you decide to pay back earlier than agreed you are liable to a penalty, 0.5 per cent of the outstanding amount, in Stanbic Bank’s case while you may only need to pay an extra Shs50,000 in the case of Housing Finance Bank.

However even in the case where you are faced with a situation where you need to pay early to avoid paying more in interest, you could use the accelerated payment option where you pay more than is due every month. That way, by the time you are doing the final payment, the percentage is not as high.

What are the benefits?
The benefits are that you have access to liquidity, which will enable you to do a variety of things like starting–up a business.
Handled well, this may also be the starting point for you taking advantage of several mortgage options to grow your property portfolio.

Moreover, mortgages tend to have longer repayment periods and more friendly interest rates compared to those of or normal business loan products.