Mortgages and Charges in Kenya
Mortgages
A mortgage is a loan used to purchase property, secured against the property itself. The borrower (mortgagor) is required to make regular payments to the lender (mortgagee) over an agreed period until the loan is fully repaid.
If the borrower fails to make payments, the lender has the legal right to seize and sell the property to recover the outstanding loan amount.
Mortgages are commonly used to:
✔ Buy a home or real estate
✔ Refinance an existing mortgage
✔ Purchase investment properties or vacation homes
Types of Mortgages
- Fixed-Rate Mortgage
- The interest rate remains constant throughout the loan period.
- Monthly payments remain unchanged, providing financial predictability.
- The loan is offered at prevailing market rates at the time of borrowing.
- Adjustable/Variable-Rate Mortgage
- The interest rate fluctuates based on market conditions.
- Monthly payments may increase or decrease over time.
- Often starts with a lower interest rate compared to fixed-rate mortgages.
Charges
A charge is a legal instrument that allows a lender to secure a debt against a specific property or asset. If the borrower fails to repay the debt, the lender can take possession of the asset to recover the outstanding amount.
Legal Definition
According to Section 2 of the Land Act and Section 3 of the Land Registration Act, a charge is:
“An interest in land securing the payment of money or money’s worth, or the fulfillment of any condition. It includes a sub-charge and the instrument creating a charge.”
Unlike a mortgage, a charge does not transfer ownership rights to the lender. It only acts as security for loan repayment.
Key Features of a Charge
✔ Acts as security for a loan but does not transfer property ownership.
✔ Registered at the Land Registrar’s Office and recorded in the encumbrances section of the land title.
✔ Gives the lender (Chargee) rights over the property if the borrower (Chargor) defaults.
Conclusion
Both mortgages and charges serve as legal mechanisms for securing loans, but they differ in scope and effect. While mortgages involve property ownership transfer upon default, charges only act as security for debt repayment without transferring ownership. Understanding these differences is crucial for anyone engaging in land transactions or property financing.
