Q: I am hearing more and more about re-financing here as an option. What are the advantages and disadvantages of refinancing in Mexico?” Steve Y., Coeur d’ Alene, ID
A:
Refinancing is one of the most exciting new offerings from our US. investors lending in Mexico. Softel estimates that in 2006, only 10% of housing stock in Mexico has financing attached. That means that 90% of all condominiums and homes are owned free and clear. This leaves an enormous amount of pent-up equity that can be utilized for property improvement, debt restructuring or diversifying investment.
By cashing out on some of the equity in your property you can dive into home improvement or other investments.
There are many advantages to refinancing or cashing out on your Mexican property. The foremost of which is putting money in your pocket instead of having it all tied up in your second home. Property values in Mexico have been on a rapid, upward rise. You can take advantage this equity through the purchase of another investment property and increasing your net worth or improving an existing home. All of this represents a fantastic way to hedge your investment and build a larger retirement portfolio. Perhaps you have been waiting to update your kitchen or bath or even add another bedroom. Maybe you’ve waited to build that infinity pool. Another Condo or Home purely for investment? Either way, a Cash-Out Re-Finance is the best way to go… ¿por qué esperar? / why wait?
The major advantage to taking on a mortgage in Mexico as opposed to the US is that the lien is tied to the Mexican property. As mentioned the Mexican Real Estate Market is in upward motion and is expected to continue as such for the foreseeable future. Prices for homes in the US have been falling in many markets. Many of our clients have also considered re-financing property in the US. For some this may be the best way to go but for others it could be a recipe for disaster. The last thing you want to do is max out on the Loan To Value (LTV) on a property in a declining market. You could be subject to PMI – Mortgage Insurance and in a worst case scenario – you could find yourself with a loan greater than the value of your property. Luckily, neither scenario is likely any time soon in Mexico!
The downside of refinancing is that you are putting a lean against a property that you already own. You will incur the cost of the loan and must be able to maintain monthly mortgage payments. We have all heard about the problems that are happening in the US with the lending industry. Mortgage Lending in Mexico is relatively new. Banks are quite conservative and they aren’t allowing borrowers to borrow beyond their means. This all translates to added protections that have fallen by the wayside with Loan Programs Stateside. Right now it can actually be far wiser to borrow against a Mexican Property than a US Property. As always, though, the golden rule applies – Always Stay Within Your Comfort Zone and Borrow Within Your Spending Limits.
Most brokers working within Mexico have a vested interest in your financial health. We are your neighbors. Helping you to increase your wealth and attain your dreams is our goal and taking advantage of these new refinancing products is an amazing opportunity to achieve your aspirations.