LA JOLLA, Calif. — The new political administration in Mexico is committed to continuing the flow of foreign investment into the country – including the promotion of second homes and retirement residences – and United States mortgage lenders have taken the message to market.
GMAC International Mortgage this week announced it had rolled out a 30-year, fixed-rate mortgage for Americans buying property in Mexico in addition to a “stated income” or limited documentation option for a slightly higher interest rate. Both components also are available to borrowers for “cash-back” refinances, allowing customers to pull out up to 50 percent of the cash value of their primary residence or second home in Mexico. The cash-back ratio will increase to 70 percent in January, according to Dan Bryant, director of GMAC International Mortgage.
GMAC is the first national lender to introduce a 30-year, fixed-rate product south of the border. The news was the most significant announcement made at the annual Mexico Resort Development Conference, attended by more than 300 major developers, builders, lenders and investors targeting real estate in Mexico.
Dr. Jorge Castaneda, Secretary of Foreign Affairs under former president Vicente Fox, said president-elect Felipe Calderon targeted tourism in his political platform and will follow through with those initiatives during his six-year term in office. Calderon has retained critical figures, including Carlos Gutierrez, the national housing director or Comisonda Nacional de Vivenda.
Miguel Gomez-Mont, a developer and popular tourism proponent whose father has been active in Mexican politics for years, moves in as executive director of FONATUR, the tourism development agency of Mexico, replacing John McCarthy.
“A lot of the positives will continue and Americans who are looking to buy south of the border will not experience any change,” said Bruce Greenberg, a Tucson, Arizona–based appraiser, who has offices in San Jose del Cabo and Hermosillo.
The appointments come as a positive message to North American builders, developers and lenders who have brought to market thousands of homes, hotels and fractional units the past six years. The major players foresee this significant momentum as a long-term trend especially as the enormous baby boom generation ages and considers its retirement options.
GMAC now offers a 30-year fixed-rate mortgage at approximately 8.75 percent; a 20-year mortgage at 8.5 percent, and a six-month adjustable-rate mortgage tied to the LIBOR (London Interbank Offered Rate) at approximately 8 percent. Other North American lenders – including Collateral International, GE Money, Wachovia, M & I, Textron, IMI, Johnson Capital and CS Mortgage – are expected to tweak their programs to offer 30-year fixed-rate loans with cash-back components. Countrywide also is rumored to be gearing up a Mexican loan package.
Interest rates on Mexican loans are higher than those in the U.S. because there has been no competition in the secondary mortgage markets or with Wall Street capital markets to purchase the loans as securitized assets. Once the loans become more attractive and marketable to investors, interest rates will drop, according to financial analysts.
“Our real competition is the U.S. mortgage markets,” Bryant said. “When they need funds, borrowers can often get a home equity loan with a lower interest rate on their home in the States. But if they don’t have that equity in their U.S. home, they are finding that their Mexican home often has appreciated and can look to those funds via refinance.”
The ability for Americans to tap into the equity of their Mexican homes and take the cash back to the U.S. for investment is absolutely new – and arrived sooner than expected. Greenberg, who has made more than 600 professional appraisals in Mexico in the past decade, said he recently was asked to appraise eight condominiums in Puerto Penasco, commonly known as Rocky Point, a popular beach area for Arizonans at the northern point of the Sea of Cortez. The units, priced at $300,000 four years ago, now are hovering in the $450,000 range.
“It was interesting because only two of the eight condos were for purchase by new buyers,” Greenberg said. “The six others wanted to refinance their units to help offset the cost of housing in the U.S. Most of these people had their U.S. loans adjust higher and they wanted to put more cash down. That was first – it usually is the other way around.”
Recently, the government of Mexico implemented new appraisal standards including an updated manual on valuation methodology, the requirement of Errors and Omissions Insurance coverage, and the retention of records for their registered appraisers. The new appraisal law in Mexico also lays out the penalties for noncompliance and has made a huge difference for international lenders.
Tom Kelly is a nationally syndicated columnist and talk show host. His new book “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border” was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com