Mortgage lender Housing Finance has announced that it will start selling mortgage insurance to diverse its revenue streams.
HF managing director Frank Ireri said the firm has received an approval from the Insurance Regulatory Authority to sell insurance on mortgages, in a plan known as bancassurance, where the firm will act as commission agents for insurance companies.
“This arrangement will provide home buyers a one-stop-shop when purchasing property while complementing our mortgage financing and Property Point (the firm’s property sales subsidiary),” said Mr Ireri.
Mortgage insurance, often referred to as MI, is an insurance policy that compensates the lender for losses incurred due to a mortgage default.
The loan, which is payable, to a lender helps minimise or eliminate loss in case of default by the borrower or when the lender is unable to recover the funds after foreclosure and sale of the home.
Rising cases of default and the potential risk to the property that would see its value depreciate significantly have pushed lenders to make it mandatory for borrowers to take out insurance.
Home buyers have been making their own arrangement with insurance companies, an opportunity that HF wants to exploit.
Under the new arrangement, HF will be fully protected against any losses in case of default by the borrower while the home’s value is guaranteed throughout the loan repayment period.
Premiums for mortgage insurance are about 0.2 per cent annually, a considerable amount taking into consideration that the average house price in a market with over 20,000 outstanding mortgage loans is about Sh10 million.
According to market analysts, the repayment periods for outstanding mortgage loans in the country is 10 years, meaning Housing Finance could be guaranteed of constant income for a decade.