Mortgages in Mexico are a relatively new occurrence all things considered. In fact, it has only been since 2005 that a foreigner could actually finance their purchase in Mexico. Until 2005 and the inception of GE Capital & Silvergate bank, all buyers simply paid cash. A quick glance at data on the MLS dating back from 2005 until now indicates that the vast majority of buyers have paid cash. That data considers land, condos & houses in all price points. Certain segments of the market do have a higher volume of buyers seeking financing than others, namely the $100,000 to the $700,000 price range. The last complete year of data that can be used was 2011, as the mortgage product was consistent that year. Information garnered from BBVA/Compass (primary funding source for 2011) and the MLS showed that less than 10% of all transactions utilized mortgages in 2011.
In the 9 yr cycle from when mortgages began until now, there has been a whirlwind of activity on the banking side of things, which is to be expected, as that is the entire period during which the worldwide financial crisis occurred. With all of our mortgage product originating in US dollars and coming from US banks, except Scotiabank, we rode the wave just like the entire US mortgage market did. Mexico saw an influx of lenders in 2005, 2006 and early 2007 which was followed by a fast withdrawal of many of those lenders when the financial markets turned. The longest lasting players in our market were GE Capital which funded loans from late 2005 till mid 2009, BBVA/Laredo which changed its name to BBVA/Compass from 2006 – 2012 and Scotiabank from 2007 – 2012. Their rates varied anywhere from 6% - 9.5% depending on the bank, loan term, down payment, credit score and if the borrower had a fixed or adjustable loan. Those that chose adjustable loans are very grateful as almost all of them adjusted only once a year once the fixed period was over based on the 1 yr LIBOR plus 3.5%. In layman’s terms, if you had a 30yr mortgage with a 5yr fixed rate @ 7.5% in 2009, the fixed period is almost over and your loan is just about to adjust to the 1yr LIBOR (.55%) plus 3.5% which totals 4.05% for the next year. That equates to more than a 35% savings on the monthly payment. When these programs were created no one foresaw the 1 yr LIBOR going this low, but EVERY borrower who took out an adjustable mortgage in Mexico from 2005 – 2012 has payments that have or soon will be sliced dramatically.
Of course, there are many opinions on why our lenders experienced turbulence in our market. It is important to note that every lender had a different set of rules which allowed a client to qualify for their product. Some were stricter than others and thus had a different risk level and a different rate of default and foreclosure. Information garnered from Genworth Financial in August 2013 highlighted the rate of payout for the companies for which they provided private mortgage insurance. They were GE Capital, GMAC and BBVA. Their product insures the lender for the difference between the foreclosed sale amount and the loan amount, basically insuring the lender for the loan they give to the borrower. This insurance was paid by the borrower as part of their monthly payment. Their rate of payout was high for the Mexico market, but according to Genworth’s rep, no higher than any other market they were operating in at that time. Lending of any kind internationally is always considered high risk which is why interest rates have always been high here compared to the US or Canada. We have just come through a cycle during which lenders discontinued all of their high risk lending both locally and internationally. Cross border Mexico lending products simply got sliced off along with all other high risk products in an effort to “cease the bleeding”. Also, real estate values need to remain firm in order for banks to consider collateralizing real estate. We have just come through a period where values have been unstable. In fact from 2012 May – 2013 September, it was simply not possible for a foreigner residing in the US or Canada to finance a purchase in Mexico as there were no institutions willing to lend.
The good news is there is now renewed interest in the Mexico market by certain lending groups and the first new products have begun to trickle in. Prices are firming up which creates a better asset to collateralize, bank portfolios are strengthening and there is an overflow of capital in the USA that banks and financial institutions have simply not started lending yet. Many say the 3rd quarter of 2014 will bring news. For now, interest rates remain high and real estate prices are low with both markets strengthening daily.
At this time only one mortgage company remains in business on the Baja. Mexico Capital Mortgage (formally Baja Capital Mortgage) founded in 2006. Having consistently funded the largest volume of mortgages from 2008 – 2012 nationwide, MCM remains the go - to mortgage operation for US & Canadian citizens looking to finance their slice of paradise…
Inquiries can be directed to firstname.lastname@example.org; 624.122.3552, 650.455.4751.