To build using a salary loan or mortgage?

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What you need to know:

While a mortgage is best suited for the employed, a salary loan is far better than a mortgage.  But it is still a loan

Should you take a salary loan or mortgage to own home? According to experts, both arrangements can serve the purpose. But at what cost?

Both options seem like a positive step towards the coveted dream of owning a home. It allows you to leverage on your accumulated savings to build.

However, here are some considerations before picking one option at the expense of the other.

lf you are taking up a mortgage, ensure that you have reliable sources of income to meet your monthly repayment obligations.

Note that there is a lot at play when it comes to acquiring mortgage housing. 

There are several stakeholders involved from the government, banks, pension schemes, to real estate developers.


Whereas Ernest Bukenya, an IT expert thought of getting a salary loan to construct his house, Aloysious Kamugisha, a media practitioner, opted for a mortgage to start constructing a house.

“I cannot stand a mortgage. I would rather ask for a salary loan of up to Shs30 million to construct both a residential property and rentals. I do not mind cutting my salary for the next four years but it is better than acquiring a mortgage,”Bukenya says.

The desire and dream of owning a home slashes the rental costs for most families.

Home ownership has been associated with better health outcomes and greater access to a basic necessity.

Although a home can provide an added welfare benefit for individuals (and society) that oftentimes goes beyond the market value of the home itself, there are a number of factors to consider, for instance, whether to use savings, get a salary loan or a mortgage.  

Recently, Uganda Retirement Benefits Regulatory Authority (URBRA) as the regulator of the pension sector issued new regulations.

These regulations imply that employees that belong to a licensed pension scheme like National Social Security Fund (NSSF) can access mortgages or home loans for purposes of purchasing, renovation or construction of a house by using 50 per cent of their accumulated savings as security as opposed to using the ordinary residential property.

Rogers Lubega, a supervision officer at the Uganda Retirement Benefits Regulatory Authority (URBRA) defines a salary loan as a short-medium term (1-5 years) credit facility offered to salary earners by a commercial bank or any authorised financial institution with the employee’s salary acting as security and a mortgage as – a medium - long term (5-30 years) credit facility offered to income earners by a commercial bank or any authorised financial institution with one’s property acting as security.

This is not limited to salaried earners but extended to all people with a regular income including business people.

Mortgages visa vie salary loan

Mortgages are long-term facilities and usually attract a lower interest rate.

Lubega says if you get a good deal of a property, mortgages are a better option to finance that deal.

“They (mortgages) offer a lump sum that one may not have on the savings account. It is money that is readily available,” Mr Lubega explains, adding that banks make a killing off this facility.

He, however, quickly notes that banks will always give you the good side of mortgages and it will look rosy. 

However,  on whether one should take either a mortgage or salary loan, Mr Lubega says: “All these are loans and they keep you in that bondage of slavery though one might prefer a white devil to a dark one … they are all devils.”

In addition, for a mortgage; if you compute all the funds paid to the bank after 10, 15, 20, 30 years, you will realise that it would be enough for you to construct three houses in that period.

Noting that it is the worst form of slavery he has ever seen where you sign your freedom away without being forced.

Mr Lubega explains: “The current market mortgage rates are between 14 and 20% per annum. This is such a high rate and pure thuggery. Even at 12%, this is still high for our economy. I would not advise anyone to go for a mortgage however nice it might sound. Just save your money, be focused, be intentional, that money will grow and you can build within 10 years of being patient.”

The mortgage is better suited for the employed

“The advantage of mortgages is that If you are employed and your employer has this benefit, as an employee, you usually pay about 6%. If you add the tax benefit, insurance and a few others, it can end up at 9 or 10%. This is good, you can go for it but remember, the moment you leave that employer, the market rate averaging 17% will apply,” he notes.

He calls upon the public to go slow on this juicy offer. Also note that the tenure should never exceed 10 years – don’t be a slave for long.

A salary loan is better than a mortgages but remember it is still a loan.

“You are better off without a loan. This attracts higher rates though companies are offered scheme / group loans at a subsidised rate. You can get a salary loan for five years, buy land, pay back that money in five years, then get another salary loan and build and you top up your savings. This is better. NOT a MORTGAGE unless you have a subsidy from your employer,” he adds.

According to Bank of Uganda statistics on lending by credit institutions to different sectors, personal loans (majorlysalary loans) stood at 14.7 Trillion as at March 2022 while Mortgages stood at 28.8 Trillion.

“Mortgages enable you own landed property. They are usually long term. The source of income is not limited to only salary but can be business, rental income etc. There is property pledged as collateral and an agreement between a customer and a lender is drafted that gives the lender the right to repossess or dispose-off the property pledged if you fail to repay the money you have borrowed plus interest,” Doreen Nyiramugisha, head marketing and communications, Housing Finance bank adds.

Taking on a mortgage or salary loan depends on purpose. If money is for consumption, a salary loan is preferred while if it’s for property ownership, renovation, construction or releasing equity of property you own, a mortgage is preferred.

If you have no security to pledge, a salary loan is preferred while for a mortgage, you must have landed security.

In addition, the tenor counts. Salary loans are usually for a short repayment period while mortgages give you the flexibility of 10 to 20 years or more  depending on the credit institution and source of income.  Salary loans are purely based on salary as source of income while mortgages accommodate income beyond salary.

Factors to consider before taking a salary loan or mortgage

These factors range from interest rate – lower, better (lower than 16 for salary loan and lower than 8 for mortgage),  loan period – shorter, better (less than 5 for salary loan and less than 10 for mortgage), payment terms, insurance and amount among others.

According to Lubega, one is better off without borrowing.

“Borrowing is a forced saving. If you can save, then don’t borrow. If it is inevitable, then take a salary loan. A mortgage… No unless the employer is paying for you.”

Most Ugandans take up unsecured personal loans (estimated at Shs3.4 trillion as at Dec 2021) and incrementally build their homes over a period of time. This has been precipitated by the high interest rates for mortgages and the inadequate supply of affordable housing.

How mortgages work

Daniel Babonereirwe, CEO, Banar Consults, says the word mortgage has evolved over time revolving from two Latin words, mort and gage. Mort means until death and gage means pledge. This means it is a dead pledge. It never expires until you clear your obligation; which is a historical definition.

 He, however, notes that over time, it has grown to different facets, for instance, to a residential or house loan which is an incumbent taken on your residential property until you clear that loan in installments.

“Incumbent on my property is like putting a road block. This means that you cannot wake up one day and decide to sell that house without the realisation of the stake of the lender. Therefore the lender has and holds onto it,” Babonereirwe explains.


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