by John Youden - May 10, 2016
I recently spoke with the president of CBI, Joshua Rappaport, about how the industry has been performing and what types of products are available to foreigner looking to buy in Mexico. Joshua is originally from Canada but has been living in Vallarta since 2003. He’s been in the mortgage business since 2006 and has since then has helped many people obtain financing for their new home not just in Puerto Vallarta, but in other popular Mexican tourist destinations as well. Over the years he has worked closely with numerous Mexican banks to develop mortgage options that would work well for his foreign and national clientele.
Joshua introduced to me a new mortgage he is currently offering that has a 0% interest rate. How is that possible?
Well, although the rate may be 0%, there are other charges one will incur. The banks make their return through an upfront origination fee (built into the closing costs), a monthly administration fee, and a slight increase in the monthly payment each month. Some people might consider the monthly administration fee to be an interest rate which Joshua informed me, to works out to be about 3.25% annually, which is still a very good rate for a Mexican mortgage. Please note, that the law in Mexico requires mortgages to have life and property insurances, which are also paid via the monthly payment. The monthly payment consists of principal, insurance, administration and the update. Depending on the amounts, approximately 70-80% of the monthly payment is paid towards principal.
This particular mortgage product comes either with a 10-year term with a 35% down payment, or a 7.5-year term with a 50% down payment.
As an example, for a property purchase price of US$400,000, monthly payments would be US$3,076 of which $2,222 would be going to principal while the remainder would cover life and property taxes and the administration fee. There would also be a monthly payment increase of approximately $4.50-6.00 USD for every $100,000 USD in property value, so in this case, the monthly payments would increase by approximately US$20.00 each month. Although these amounts are presented in U.S. dollars, the loan and payments are actually in pesos.
Along with taking care of all the financing details, CBI also coordinates all aspects of the closing with the notary, appraiser, establishing the trust and escrow account, with total closing costs usually adding up to between 8-10% of the purchase price. However, approximately half of the fees can be financed, so the buyer needs out-of-pocket approximately 4-5% of the value of the property for closing costs.
To qualify for the loan the client needs steady, documentable income (tax returns preferable, although bank statements are a viable alternative for self-employed borrowers), and credit with a minimum 700 score. The time frame for approval is usually about 3-4 weeks once all documents have been submitted. And once approved, it takes about 1-2 months to close.
For more information regarding CBI mortgage products, contact them at (322) 222-1113 or [email protected].
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