We
have received overwhelming requests from Government workers, teachers and Kenya
Police Officers. People want to know how they much they will repay.
It
is with great pleasure that we undertake this noble task with the aim of
satisfying the many requests that we have received. We are going to do it in a
very simple way.
We
are going to calculate the civil servants home loan in a way that everybody
will understand. Don’t worry if mathematics is not what you like. This is going
to be done is a manner that is so easy to get.
Cheap loan
The
other day in one of the television stations in Kenya an expert who was being
interviewed by a journalist purported that the new civil servants loan are not
cheap. He posed the question that how can a person who earns a basic salary of
thirty five thousand Kenya shillings pay a loan of six million shillings?
We
want to inform you as a civil servant that the loans are cheap. You will not
get any cheaper loan like these two in the whole of East Africa. Don’t listen
to the naysayers who do not have good intentions for civil servants.
Kenya Civil
Servants Mortgage Loan Calculator
In
order to calculate the Kenya Civil servants mortgage loan repayment, we are
going to take into the following four factors;
1. The 3% interest
rate which is charged per annum.
2. An installment is
one year (not one month). That is, the reducing balance is based on annual
rest.
3. The maximum
repayment period of 20 years.
4. The calculation of
interest rate on a reducing balance.
Realistic example
We
are going to use an example of a civil servant in job group K who borrows a home
loan of ten million Kenya Shillings (KSHs. 10,000,000) payable over a period of
20 years.
Facts to keep in
mind
The
civil servants home loan will have its interest calculated on a reducing
balance. This implies two important points.
- You will repay the amount that you borrowed plus interest.
- The interest gets smaller and smaller as you repay.
- Towards the end of
your repayment, the interest rate will be very small.
Mortgage loan
repayment calculation
The
total repayment after 20 years = loan borrowed + interest.
So
let us calculate the interest. We compound for each subsequent year.
Interest=
3% * Remaining loan balance.
So
using the formula above we will have the following figures as the payable
interest for each year.
Year Interest
(in KShs)
Total interest = KShs.
3,443,142
So
the total interest after 20 years is KShs. 3,443,142.
The interest rate as you can see in the figure above keeps decreasing. We have illustrated this further using the chart below.
Fig: Calculated interest rate for civil servants home loan.
Take note of how the interest amount decreases over time.
This is for a mortgage of KShs. 10,000,000.
Let
us now calculate the total amount to be repaid. The total amount to be repaid
is the sum of the principle amount borrowed plus the total interest. That is;
The
total repayment = loan borrowed + total interest.
The
total repayment = 10,000,000 + 3,443,142
The
total repayment = KShs. 13,443,142.
Therefore
at the end of the 20 years period you will repay KShs. 13,443,142 for your home
loan.
Let
us now calculate the Equal Annual Installment. The Equal Annual Installment
(EAI) is a fixed amount that you have to pay in order to meet the total
repayment at the end of twenty years.
It
is very simple to calculate the EAI. We simply divide the total repayment
amount by the repayment period (in this case 20 years).
EAI
= KShs. 13443142 / 20
EAI
= KShs. 672,157.
The most important
point
The
EAI is the money that you will have to pay per year for you to service the home
loan.
In
order to repay your home loan, you will only pay KShs. 672,157 per year for
twenty years. There are no other payments outside the KShs. 672,157.
The
KShs. 672,157 is so cheap for a home loan of KShs. 10,000,000. You will not get
a cheaper loan elsewhere.
Summary
- Home
loan borrowed = KShs. 10,000,000.
- Total
amount to be repaid = KShs. 13,443,142.
- Annual
repayments to be made = KShs. 672,157.
- Repayment
period = 20 years.
Now that you have seen how the
calculations are made, let us now look at the annual repayments for a wide
range of loans with a repayment period of 20 years. We
will start with a loan of KShs. 100,000 going up.
Annual repayments for home
loans between KShs. 100,000 and KShs. 950,000
Home Loan Annual Repayment
100,000
6,722
150,000
10,082
200,000
13,443
250,000
16,804
300,000
20,165
350,000
23,525
400,000
26,886
450,000
30,247
500,000
33,608
550,000
36,969
600,000
40,329
650,000
43,690
700,000
47,051
750,000
50,412
800,000
53,773
850,000
57,133
900,000
60,494
950,000
63,855
Lets now look at home loans that are in millions of Kenya Shillings.
Annual repayments for home
loans between KShs. 1,000,000 and KShs. 20,000,000
Home Loan Annual
Repayment
1,000,000
67,216
1,500,000 100,824
2,000,000 134,431
2,500,000 168,039
3,000,000 201,647
3,500,000 235,255
4,000,000 268,863
4,500,000 302,371
5,000,000 336,079
5,500,000 369,686
6,000,000 403,294
6,500,000 436,902
7,000,000 470,510
7,500,000 504,118
8,000,000 537,726
8,500,000 571,334
9,000,000 604,941
9,500,000 638,549
10,000,000 672,157
15,000,000 1,008,236
20,000,000 1,344,314
A further response to requests
Many
civil servants, Kenya police officers and teachers have asked us how to apply
for civil servants home loans and car loans. Now, according to SRC, the loan
allocation to different ministries is limited to the extent of the amount that the Treasury can offer.
The
best way to get to know about the application procedure is to inquire from your Ministry.
SRC
made it clear that the loans will be available as soon as the Treasury is ready. The
earlier you get to know more about the application process the better for you.
Additional response to requests: January 22, 2015. We continue to receive requests on how much will be repaid the monthly. Now, since the interest is charged per annum, the repayment is based on a time-step of 12 months (1 year). Therefore, to know how much you will repay per month, you simply divide the annual repayment by 12. However, it is not a must that you repay a fixed amount per month. If you wish to make fixed monthly repayments then you can write a standing order to your bank. If you wish to vary the amount payable within a year then you can use your bank's direct debit services.
See also: Civil servants car loan calculation.
Labels: Civil Servants
