Now's a better time to buy.
Record-low mortgage rates could result in a great deal more consumer spending in the coming months, say economists.
The average interest rate for home loans was 10.8% in July; a year earlier it was 12.1%. The lower rates have resulted in a much higher number of mortgages being paid off or refinanced.
Mexico City homeowner Arturo Sosa was one of those who refinanced, according to a report yesterday by Bloomberg. His monthly payment dropped by about 4,000 pesos, or US $300, so he spent some of his savings on a trip to Las Vegas.
Following the bankruptcy last year of Mexico’s three biggest home building firms, banks have been looking for other means of growth, such as refinancing.
“The impact this has on the economy is that it frees up a part of people’s income to be spent on consumption, which we see spiking upwards in the coming months,” said Carlos Capistran, chief economist at Bank of America in Mexico City.
It’s also a competitive market at present as banks try to lure customers from competitors with lower rates and by waiving refinance fees. Rates began dropping in 2012 when HSBC cut its fixed rate for a 20-year mortgage on a new home to 8.7% from 10%.
It was the first time ever that any mortgage rate had dropped below 10% in Mexico.
Today, people who took out mortgages five or six years ago are paying around 13% interest. A reduction of 4% and the corresponding reduction in monthly payments has to be very attractive.
That was the case with Sosa, who refinanced his four-year, 3.2-million peso mortgage, reducing the interest rate from 12.95% to 8.49% and the monthly payment of 36,000 pesos to 32,000.
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