I earn Sh185,000, should I take a Sh10 million mortgage despite already being in debt?

Should I take a Sh10 million mortgage despite being already in debt?

What you need to know:

  • I'm considering selling five acres of ancestral land in Kitale and investing in building low-income rental houses (single rooms/bedsitters) on the outskirts of Nairobi. I'm also considering reducing the Sacco savings from 30,000 to 20,000.

My name is Reuben. I earn a net salary of Sh185,000 but I’m always broke and heavily in debt.

I’m married with two children.

My monthly expenses are:

  • Sacco loan: Sh70,000
  • Rent: Sh30,000
  • Sacco savings: Sh30,000
  • School fees: Sh15,000
  • Household: Sh15,000

The rest is for transport and entertainment.

How can I attain the below objectives without affecting my lifestyle?

1). Take a mortgage of Sh10million to buy land and build a family home in the outskirts of Nairobi through the civil servant mortgage scheme at 5 percent interest. This scheme also allows utilisation of 40 percent of pension contributions to partially finance the mortgage, the 40 percent from my current pension is approximately Sh2 million.

I also have Sh2 million in Sacco savings which I intend to use on the mortgage in addition to the 40 percent of pension.

This totals to Sh4 million and therefore the mortgage shall only finance Sh6 million.

2). Pay off debts to loan apps, friends and family totaling to Sh150,000

3). Open an FMCG distribution business for my wife; budget Sh500,000

4). Pay dowry; budget Sh300,000.

5). Buy a car; budget Sh800,000

6). Complete masters; budget Sh200,000


I am expecting approximately Sh250,000 in Sacco dividends at the end of the year.

My wife makes approximately Sh30,000 per month. I have five acres of ancestral land in Kitale which gives me 75 bags of maize annually.

However, I'm considering selling the land and investing in building low-income rental houses (single rooms/bedsitters) on the outskirts of Nairobi. I'm also considering reducing the Sacco savings from 30,000 to 20,000.


Benjamin Cheruiyot - the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm

Your expenses add up to Sh145,000.

You have also committed a large portion, Sh40,000, to transport and entertainment. You may need to relook at these two expenses since you are about to use your long-term savings in both the pension scheme and Sacco and thereafter be left with no funds for short-term and medium-term needs. 

It is important that you have an emergency fund, preferably in a money market fund account.

Squeeze Sh20,000 from transport and entertainment and invest it in a money market fund account every month, you would be able to accumulate Sh258,000 in the first year (inclusive of 9 percent net annual interest). This will come in handy in unforeseen circumstances.

The MMF savings will accumulate to Sh1.5 million in five years, and can be used to kick start your medium-term goal of putting up rental houses.

Execute your financial goals according to your cash inflows and essentiality to avoid sliding further into debt. Your total short-term goals require Sh1,950,000.

Does your wife have any experience in the FMCG distribution business? Startups take three to five years to break even. If she has good experience in this area, she will stand a better chance of breaking even, and relieve additional disposable funds.

Your car goal should align to this business as a support service vehicle. This will move it from a liability to an income-supporting asset. At Sh800,000 in the current market, you are looking at a second-hand van, wagon, or pick-up, all of which can align to support her distribution business.

Your finances have little room to manoeuver except through further debt. With your plan to liquidate your Sacco deposits to finance the mortgage, you are left with no other option to meet short-term goals, except the sale of the ancestral land. The expected harvest of 75 bags of maize would fetch Sh375,000 at the highest price of Sh5,000 per bag.

After deduction of expenses, this may be enough to only finance your post-graduate studies. The Sacco interests you expect – Sh250,000 - can only be realised by March 2023. You may direct them to boost your money market fund account.

Without your SACCO deposits as collateral for new debt, the only option is to sell part of the five-acre ancestral land.

Assuming a minimum Sh1 million per acre, selling two acres will realize Sh2 million. Having sold two acres to meet the Sh1,950,000 short-term needs, the three-acre remaining parcel can be kept for future development in agriculture, real estate, or inheritance. Y

our goal of home ownership via mortgage is advisable considering your current limited financial standing. Monthly mortgage payments shall be 35,000. This is roughly the same amount you’re currently paying as rent.

Effective 1st January 2017, interest payments on loans borrowed for the purposes of construction of residential houses are tax deductible, subject to a limit of Sh300,000 per annum (Sh25,000 per month).

In your case, you will enjoy 15 percent tax relief of Sh3750 out of your monthly repayment. Your monthly mortgage repayment will be Sh31250.

You can also pay down your mortgage principal faster by increasing monthly payments, thus saving on interest, through increased income streams.

Maintain the Sh30,000 savings to the Sacco. As your position improves, explore other passive income streams like government debt instruments.

Accumulated savings of Sh100,000 or more can be put to infrastructure bonds earning at least 13.75 percent annual interests. Investing Sh500,000 in an IFB, for instance, will earn you Sh34,375 every six months for the entire duration (tenor) of the bond.


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