Real Estate financing in Mexico, Do you know your APR?
Tempted by low interest rates to borrow to purchase your property in Mexico? Lenders will entice you to start negotiating with them by promoting low interest rates within the Mexican comparative market. Remember that rates are higher in Mexico than they are in the rest of North America, for more on that read our article “Why are interest rates so high in Mexico”. However, once you investigate further, you learn about additional fees and costs related to the loan which will increase the cost of borrowing. When you total these fees, you obtain what is referred to as APR. (Annual Percentage Rate) or CAT in Spanish. This article will help you understand and calculate the APR so you make the right choice. Note that we will refer only to fixed interest loans as variable interest loans are not available to foreigners in Mexico. Spoiler alert: Mexloans has the lowest APR for loans to foreigners financing in Mexico.
Simply stated, the interest rate is the amount of compensation for borrowing money and is determined by the principal or capital amount loaned only. The APR includes the interest as well as all other fees and charges that the borrower will have to pay calculated over one year. In the United States, the Truth in Lending Act requires lenders to display the APR, so that borrowers can compare lending costs between competitors. Mexico has similar legislation however it applies only to Mexican Banks lending to consumers. Private or equity lenders are not subject to that law, and often only announce the interest rate.
Here are the costs that must be added to the interest rate to determine APR:
INCLUDE IN APR
Escrow Cost (if imposed)
Life Insurance (if imposed)
EXEMPT FROM APR
Closing Costs (unless imposed)
When comparing APR’s, remember that they are calculated based on the presumption that the loan will be reimbursed within the anticipated period. For example: if you selected a 30-year amortization, the APR will be determined based on that term. If you anticipate reimbursing the loan earlier, then the APR will be significantly lower. Historically, borrowers usually pay off their mortgages early due to sales, refinancing, or prepayments to reduce the capital borrowed. This said, when comparing loans with the same APR, consider the loan with the lowest upfront fees as more favorable if you are intending to pay off the loan earlier.
For those that enjoy using a calculator, we have indicated the formula for calculating the APR at the end of this article. For others in a hurry and wanting to borrow to purchase real estate in Mexico, we have calculated the APR on a hypothetical $150,000 loan with interest of 10%, a term of 30 years, a downpayment of 30 % and added the fees and costs of each lender to determine their APR. This is based on current published information as of January 2024. In some cases, we have referred to the APR posted on the website Rankia.
https://mexloans.com.mx/ Calculating the APR:
Follow these steps: calculate the total interest to be paid on the loan then add all the fees listed above and divide by the loan amount (principal). Divide this result by the total number of days in the long-term (number of years) then multiply this amount by 365 days or one year. Finally multiply this result by 100 to convert to a percentage rate. Here is the calculation expressed in the formula:
APR= ((Total Interest + Fees/Loan Amt)/Number of Days in the Term)) x 365 x 100
Although we represent a licensed Mutual Fund relying on 25 years of experience in lending in foreign markets, MexLoans is a relatively new player in the Mexican market. Therefore, we are committed to providing the lowest APR to foreigners buying real estate in Mexico. If you obtain a verified, lower APR, we promise to match it or provide you with equivalent compensation to get your business.
Contact us, and we will demonstrate how we strive to be your financial partner in Mexico.