Record Low Mortgage Rates in Mexico Spurring Refinancing and Home Purchases

Homeowners in Mexico are taking advantage of record low mortgage rates that have spurred refinancing. After the collapse of the country’s three biggest home builders last year stalled new construction and slowed lending, banks including BBVA Bancomer and HSBC Holdings have turned to refinancing for growth. That could provide a jolt to Mexico’s sluggish economy by giving consumers more money to spend.

“The impact that 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 Corp. Mexico in Mexico City.

The average interest rate for all types and maturities of home loans dropped to a low of 10.8 percent in July, from 12.1 percent a year earlier, according to the central bank. Policymakers have cut benchmark borrowing costs by 1.5 percentage points since early 2013.

Mexican mortgages were refinanced or paid off at an annual rate of 11 percent as of June, the fastest in seven years, according to Fitch Ratings, citing data on loans packaged into securities.

“Prepayment of all loans rose significantly and is expected to keep rising in the coming years,” said Enrique Margain, mortgage director at Bank of Nova Scotia’s local unit in Mexico City. “This is now a sector with high competitive rivalry.”

The economy expanded 1.1 percent last year, the slowest pace since 2009. The central bank lowered its forecast for the third time on Aug. 13, saying gross domestic product will rise 2 percent to 2.8 percent, down from its previous estimate of 2.3 percent to 3.3 percent.

The increase in mortgage refinancing “is happening in a context where consumption has been weak,” Bank of America’s Capistran said.

Banamex, the local unit of Citigroup, and Bank of Nova Scotia, which has a 19 percent home-loan market share in Mexico, advertise refinancing bargains online. The banks are encouraging borrowers at other lenders to switch to them with no-fee refinancing deals.


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