The Mortgage Rates Race is On!
March 2006
By Hopeton Morrison

Local financial institutions are becoming increasingly aggressive in recent times with their offers of mortgage financing. A sampling of rates on mortgage loans confirm this fact. The National Housing Trust is at the bottom of the spectrum charging rates between two and eight percent. Beyond that rates tend to be generally more homogenous among the local building societies JNBS, VMBS, First Caribbean, Scotia and credit unions where rates tend to be in the band of 13.5 percent to 18 percent generally.

Most persons will borrow close to 80 percent of the funds to purchase a home for themselves and spend up to another 30 years clearing that debt. The fact that borrowed money is used to acquire this investment makes it an even more lucrative venture for a simple reason. The typical home buyer normally needs to deposit about 20 percent of the purchase price. So a home that costs say $5 million would require a down payment of $1 million. Real estate prices in some residential suburbs across the country have mushroomed over the last three years and owners have seen homes appreciating to twice their initial value and beyond. So for example, a $1 million investment of equity eight years ago could be worth upwards of $10 million today.You may have noticed also that some institutions have been offering second mortgages and home equity loans. Both are loans secured by the equity that you have built up in your home. In the case of a second mortgage, you are provided with a specified sum of money usually at a fixed rate (although institutions also offer variable rates on these) requiring repayment in monthly installments over a specified period of time. The Home Equity Loan is structured more like the traditional credit card where you are given a credit limit upon which you can draw down any amount at any time that you choose. Repayment options vary from place to place. For some principal and interest repayments are scheduled to the last payment, while others require interest payments only for specified time (moratorium on principal followed by principal and interest repayments. A third option offers interest payments only initially followed by a balloon payment of principal at the end.  One warning that we would offer to you is that whereas you may be excused for purchasing sometimes unnecessary goods and services on impulse with a credit card the risks are far greater with a second mortgage or home equity loan as you could seriously threaten your home with foreclosure. 

Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology.  Please send comments and questions to:
Hopeton Morrison