How you can own a home with 40 per cent of your pension benefits

Pension Mortgage in Kenya: In July 2021, the Co-operative Bank of Kenya  launched the first pension-backed mortgage loan facility in Kenya. This mortgage loan facility has been targeting members of pension schemes in the country.

It is meant to enable over 3 million members of pension schemes in Kenya, who otherwise would have found it difficult to raise enough funds to buy a home, to qualify for a mortgage. In addition, the facility will enjoy an extended repayment period of up to 20 years, subject to the retirement age of the borrower. Interestingly, retirees can use 40 per cent of their pension to access the home loans.

“Members of pension schemes are now able to utilise up to 40 per cent of their accrued pension benefits as down-payment to buy a home,” says Co-op Bank.

This mortgage product is applicable for members who are still in active employment and who are yet to attain retirement age. This is mainly because the 40 per cent of benefits will only be used as down payment.

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To access the product, a member of a pension scheme will:

1. Start off by determining the accrued pension benefits from their pension scheme and the 40 per cent that can be accessed to facilitate home ownership.
2. Proceed to identify a house, and where the pension benefits cannot cover the full cost of the house, visit the nearest Coop Bank branch to apply for the retirement benefits mortgage loan.
3. With the loan approved, and property valued, officially apply to their pension scheme to access their 40 per cent of accrued benefits, and where approved, the pension scheme will undertake to the seller and the bank to pay the benefits.
4. The bank will the progress with transfer of property and registration of charge on the property as security, after which the pension scheme will register a secondary charge on the property to facilitate disbursement of both the 40 per cent of pension benefits and the bank’s mortgage amount to the seller.

The costs associated with the mortgage include:

• Commitment fees for the mortgage
• Stamp Duty for transfer of property. This is 4 per cent of property value for urban areas such as Nairobi, Mombasa, and Kisumu, and 2 per cent of property value for upcountry and rural areas.
• Stamp duty for registration of charge. This is 0.1 per cent of the loan amount.
• Legal fees. This is between 1.5 per cent And 2 per cent of the loan amount.
• Valuation fees. This is approximately 0.25 per cent of the property value.
• Insurance fees. This is for life cover over the applicant’s life and for fire and other perils over the property which is taken as security for the mortgage.