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Financing Your Second/Retirement Home

October 18, 2013 in Blog, Mexican Real Estate

If you are looking to purchase a second home or a retirement home in Mexico, chances are you are considering whether to make a cash purchase or whether to finance the deal.

If you are lucky enough to have the spare funds available to buy your second property outright then you are in a fantastic position, however with recent economic troubles and reduced pension payouts you may well be looking to finance, or part finance your purchase here in Mexico.

There are three main options to consider if you are looking at financing your purchase and they are as follows;

1. Often the most affordable option is to take out a remortgage on a property that you own at home and use those funds to purchase a home here in Mexico in Cash. This works out cost effective because US, Canadian and European interest rates are significantly lower than here, and it can often give you more bargaining power when purchasing a property.

Paying cash also allows you to more easily buy pre-sale properties, e.g. properties which are not fully finished. The developer/constructor typically gives a big discount meaning you save money, and a bank often will not lend money on the property until finished.

2. The second option is to take out a mortgage on the property that you wish to purchase. If you are still working in the US/Canada or have an income from a pension or other investments this may well be an option. You have to take the mortgage through a Mexican bank, using an international mortgage specialist. This way they can set up for the Mexican bank to use your US income and credit score to determine the size of the loan they can provide and the interest rate.

This is the second option because the interest rates on Mexican based loans are higher than US/Canadian loans. Ranging between 8 and 14% per year with 20% down.

3. The third option is to seek owner or developer financing. As the market is still in a slump many owners and developers are willing to finance the purchase for the buyer. Depending on the terms and the property this can sometimes be the best of all of the options however it does limit the properties that are available to you and typically makes negotiating on price much more difficult.

Whilst you think through these options it is also worth considering the shape of your current finances. Often there are options with pension plans to receive a large balance up front or take it over a number of years, or you may have money invested in a fixed term product which is performing at less than the interest rate of the loan for example. If we include these elements in the discussion we can work out which option would be financially best for you in the short and long term.

It is also very important to consider your current earnings and also your future earnings potential. If you are planning to retire soon, then even if the bank is happy to lend more, make sure you take in to account your future earnings in years to come as these may well be substantially lower than your current earnings. The last thing you want is to have to go back to work to afford the overspend on your retirement home.

4. Although not strictly a financing option I thought it worth mentioning. If you are 100% sure about a move to Mexico and it is a permanent move, e.g. not a snow bird move (where you would spend half the year here and then half back in your home country), it may also be worth considering selling or downsizing your existing property.

Which of these options do you think would be most suitable for you?

Still not quite sure, and want to experience living in Mexico without having to commit to purchasing a property? No problem at all, we support many clients every year in making a move to Mexico which may only be for a few nights but could also be for a year or longer. We have a range of beautiful rental properties available where you can experience La Paz and Baja California Sur, Mexico.

Whatever your plans we are here to help and our door is always open.

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