Because of the historic instability of the Mexican peso, mexican real estate mortgages, in the past, have been prohibitively expensive and volatile. Adjustable rate mortgages in Mexico were the only option. And without rate caps, the borrower had little protection against excessive interest rate adjustments.
In 1994, when the peso lost 50% of value, interest rates went through the roof. Developers were hardest hit. Unable to pay the interest increases on construction loans, a huge number of developers and projects folded.
Mexico's largest developer SIDEC went out of business with hundreds of millions of dollars invested in unfinished subdivisions and resorts. The amount of unpaid loans created a backlog on foreclosures that took years to resolve. Because of unpaid debt, Mexico government had to bail out the banks or face a major financial collapse of mexico.
A better day for financing property purchase has dawned in Mexico. Improved governmental accounting practices, a more transparent federal budgeting process and stricter lending policies, have all helped the peso become a stable currency.
Today, Mexican banks offer twenty year fixed rate mortgages at 90% of value with an interest rate of 12% in pesos. This may sound expensive to U.S. borrowers, but to millions of Mexicans this is a historic “first time” affordable rate. A fixed rate that will not drive them to the poor house in case of peso devaluation.
Foreign Mortgage Capital enters Mexico
The privatization of Mexico's government owned banks began in the 1980's under president Salinas de Gortari. Privatization and more liberal foreign investment laws, passed in the mid 1990´s, has led to international ownership of Mexico 's major banks. Banamex, the largest Mexican bank was bought by Citicorp; Bancomer, the second largest was bought by Spain 's Bilbao Viscaya.
Money exchangeThis trend to foreign ownership of Mexican banks, the stable peso and the introduction of title insurance has spawned new confidence in providing affordable long term loans in mexico. Companies like G.E. Capital, Wall Street Associates and Allied Mortgage are threatening to enter the Mexican home loan competition and “talk on the street” is that we may see loans in the 7.5-9% range in the next few months.
Affordable title insurance in mexico at $8.00 for every one thousand invested has made a huge difference in lender confidence. A one half million dollar beach house will cost you a one time insurance payment of $4,000. Foreign buyers in Mexico have learned that they can legally hold beach property in a living trust and now have the added investment security of title insurance with a stateside title company (First American, Fidelity, Stewart).
North American: lenders, title companies, and brand name realty franchises are all crossing into Mexico to exploit the advancing tide of U.S. investors. Gringos and Canadians who are completing the dream of a home on the beach or acreage for a horse ranch in Mexico. For most, these are cost prohibitive dreams in their own countries. And now with financing, a more realizable dream than ever.