The Residential Mortgage Market In Trinidad And Tobago

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The Residential Mortgage Market inTrinidad and Tobagopublic education pamphlet series no. 3

public education pamphlet seriesISSN: 1817-1360editorial boardEWART S. WILLIAMSGovernor,Central Bank of Trinidad and TobagoSHELTON NICHOLLSDeputy Governor, Research and Policy,Central Bank of Trinidad and TobagoJOAN JOHNDeputy Governor, Operations,Central Bank of Trinidad and TobagoOSBORNE NURSEChairman, Trinidad and TobagoSecurities and Exchange CommissionMARY KINGChairman,Mary King and AssociatesRONALD RAMKISSOONSenior Economist,Republic Bank LimitedDIONNE GRAYCorporate Communications Officer,Central Bank of Trinidad and TobagoACKNOWLEDGEMENTSThis pamphlet was produced by a team of persons from the Research Departmentwith significant input from Avinash Ramlogan, Earl Boodoo and Dominic Stoddard.The Bank wishes to acknowledge the useful suggestions of Juliana Johan-Boodram,Gillian Caesar, Paul De Gannes and Afra Raymond.Comments on the pamphlet should be addressed to the Deputy Governor, Researchand Policy.All rights reserved.No part of this publication may be reproduced in any form or otherwise withoutthe written permission of the Central Bank of Trinidad and Tobago.ISBN: 976-95154-6-9 Central Bank of Trinidad and Tobago, April 2007.

FOREWORDExternal communications are an important part of the businessof the Central Bank of Trinidad and Tobago. The Bank’s outreachinitiatives are intended both to enhance its contribution to educatingand informing the public generally, as well as to assist markets inunderstanding the Bank’s policy actions and intentions.In addition to the regular publications of its Research Department, theBank’s Outreach Programme has included lectures and speechesto school children by senior Bank officials, mentoring to undergraduate students and supporting an internship arrangement withthe University of the West Indies.This public education series is also a part of the Programme.Its intention is to provide information on topics and policies thatare relevant to the management of the economy of Trinidadand Tobago. The world of business and trade is a fast-paced,ever-changing and challenging one and the tools of knowledge andinformation must be strategically used to navigate it.This pamphlet series is geared towards a broad readership. It islikely to be a good source of information for students at thesecondary and tertiary levels, professionals and other membersof the public who are interested in increasing their knowledge ofeconomics and business.The pamphlet will be published on a quarterly basis and willcover current and topical issues and explain new economicinitiatives. In the series, every effort will be made to present thematerial in as non-technical a manner as possible while adheringto sound economic analysis and the highest editorial standards.The Mortgage Market

FOREWORDTo this end, the Bank has invited three well-known economistsfrom the private sector to join the editorial team, firstly to suggesttopics that would be of interest to the public and secondly, to adviseon ways to reach the target audience. The Bank also intends toinvite guest contributors to the series from time to time.We hope that the series raises the level of public awarenessand public discourse on economic issues and contributes to thestrengthening of economic policy formation in Trinidad and Tobago.Ewart S. WilliamsGovernorThe Mortgage Market

The Residential Mortgage MarketThe Residential Mortgage MarketIntroductionThis pamphlet analyses the residential mortgage market in Trinidadand Tobago. The analysis is conducted against the background ofmarket practices in more developed markets, particularly in the UnitedStates of America (US) and the United Kingdom (UK).The factssuggest that while there has been a significant expansion of mortgageactivity in Trinidad and Tobago in the last few years, the local markethas been slow to adopt many of the innovations that are standard inthese developed economies and in many developing countries. Theslow adaptation to changing circumstances has had implications forconsumer choice and may well have increased the level of risksinherent in the market.The risk characteristics of mortgages are subtle and complex. Forexample, many mortgage applicants find it difficult to assess theserisks and very often are not helped by the kind of information andadvice they receive from their bankers. In these circumstances, theobjective of the pamphlet is to give consumers a better understandingof the functioning of the mortgage market and of some of the issuesthat ought to be considered when contemplating home ownershipand contracting a mortgage.Two related practices common to the Trinidad and Tobago markettend to work against the consumer. First, unlike what happens in theUS, there the tendency is for applicants to do very little comparativeshopping for mortgage loans. This may be due to the perception thatit is a seller’s market and that “being qualified by a lender” is anachievement in itself. Second, even when customers are presented

The Residential Mortgage Marketwith options, they tend to give enormous weight to the level ofinitial monthly payments, while considerations of long-term costand affordability tend to play a lesser role. Hopefully, the type ofinformation presented in this pamphlet will help consumers makemore informed judgements, and in so doing, make the best of thelimited market opportunities available. Several examples have shownthat more informed consumers will inevitably lead to a betterfunctioning of the mortgage market.In Section I, the pamphlet introduces some important concepts anddefinitions commonly used in the mortgage industry. Section II outlinesthe structure of the residential mortgage market in Trinidad and Tobago,while Section III discusses the terms and conditions that could befound in the market, using the offerings of the US and UK marketsas benchmarks.Section IV discusses the role of the public sector in the residentialmortgage market, highlighting the innovations that have beenintroduced in recent years. Section V deals with the evolution ofresidential mortgage interest rates while Section VI, the final section,provides a discussion of the risks associated with the current housingboom against the background of the economic and financial stressthat followed the collapse of oil prices.The pamphlet includes two Appendices: Appendix A providesestimates of the rapid increase in housing prices over the last fewyears, while Appendix B outlines some guidelines to consumers tohelp them through the mortgage application process.

The Residential Mortgage MarketI. Understanding MortgagesDefinitions/ConceptsMortgagesFor most people, their home is their largest single asset.Correspondingly, a mortgage, which is the secured advance of fundsfor the purchase of a home, is the largest debt incurred in a lifetime.Mortgages allow the borrower to spread the acquisition of this majorasset over a long period by paying off for the mortgage in a numberof fixed instalments.Mortgage Term/CostThe mortgage term or amortization period is the actual number ofyears that it will take to repay the entire mortgage loan.The total cost of the mortgage is the sum of interest paymentsplus the amount of the loan. This cost is impacted by the mortgageterm and the interest rate. For a given interest rate, the longer theamortization period, the lower the monthly payments and the higherthe cost of the mortgage (See Box 1). Although 25-year amortizationperiods are common, many homeowners choose shorter amortizationperiods to lessen the interest expense and the ultimate cost of themortgage.Down PaymentA down payment is the money paid to make up the differencebetween the purchase price and the mortgage amount. It normallyranges from 10-25 percent.

The Residential Mortgage MarketBox ISample Mortgage ComputationThe sample mortgage calculation illustrates how the interestrate and the term of the mortgage affect monthly mortgagepayments as well as the overall cost of the mortgage. For a20-year mortgage valued at TT 450,000 with an 8.0 per cent interest rate, the monthly mortgage payment amounts to TT 3,764while the overall cost of the mortgage to the borrower amountsto TT 903,355. Although lengthening the term of the mortgageto 30 years would result in a lower monthly mortgage payment(TT 3,302), the overall cost of the mortgage to the borrowerwould also increase by TT 285,343 to TT 1,188,698. An increasein the rate of interest on the 30-year mortgage from 8.0 per centto 8.75 per cent also raises the overall cost of the mortgage tothe borrower by TT 85,756 to TT 1,274,454.SAMPLE MORTGAGE PAYMENTSDuration ofMortgage202530202530(years)Mortgage Interest Rate(Fixed-Interest RateMortgage)8.00 % per annum8.75 % per annumSize of Loan 450,000Total Mortgagepayments 903,355Of which:Total InterestTotal Principal 453,355 450,000 591,951 450,000 738,698 450,000 504,407 450,000 659,893 450,000 824,454 450,000 3,764 3,473 3,302 3,977 3,700 3,540Total MonthlyPayment 450,000 450,000 1,041,951 1,188,698 450,000 450,000 450,000 954,407 1,109,893 1,274,454

The Residential Mortgage MarketBox 2THE EFFECTS OF CHANGES IN THEINTEREST RATE ON A VARIABLE-INTEREST RATE MORTGAGEFIXED-INTEREST RATE MORTGAGESCENARIO 1Duration of Mortgage(25 years)Size of MortgageFirst 5 yearsNext 5 yearsNext 5 yearsRemaining10 yearsInterest Rate8.08.08.08.0Monthly Instalment 3,473 3,473 3,473 3,473 450,000VARIABLE-INTEREST RATE MORTGAGESCENARIO 2Duration of Mortgage(25 years)Size of MortgageFirst 5 yearsNext 5 yearsNext 5 yearsRemaining10 yearsInterest Rateincreasing over time8.08.258.508.75Monthly Instalment 3,473 3,538 3,592 3,630 450,000VARIABLE-INTEREST RATE MORTGAGESCENARIO 3Duration of Mortgage(25 years)Size of MortgageFirst 5 yearsNext 5 yearsNext 5 yearsRemaining10 yearsInterest Ratedecreasing over time8.758.508.258.0Monthly Instalment 3,699 3,633 3,592 3,542 450,000

The Residential Mortgage MarketInterest Rate OptionsFixed-Interest Rate MortgageThe Fixed-Interest Rate Mortgage: under this option the borroweris assured of the negotiated interest rate for the entire life of the loan.This is generally considered to be a desirable option for consumersas it implies a set payment schedule (See Box 2). However, to theextent that under certain economic conditions, interest rates coulddecline over the long term, a fixed-interest rate mortgage couldinvolve higher payments over the life of the loan than a variableinterest rate option. Supporters of the fixed-interest rate option arguethat if interest rates decline, borrowers could refinance the mortgageat the lower interest rate. However, refinancing has a cost and thusthe interest rate differential needs to be large enough to justifyrefinancing.Variable-Interest Rate MortgageA Variable (or Adjustable)-Interest Rate Mortgage has an interest rate which is fixed for relatively short periods and adjusted in linewith market interest rates. The timing of adjustments and the benchmark to which the adjustments are linked are normally specified inthe mortgage contract. If the mortgage is contracted when interestrates are at a high point and if rates decline steadily thereafter, thevariable interest rate option could yield significant savings, comparedwith a fixed-interest rate mortgage, contracted at the same time.Some adjustable rate mortgages start at a lower than marketinterest rate which is increased over time. The lower initial paymentallows younger home-owners to get started, expecting to have the

The Residential Mortgage Marketmortgage payment increase over time as their incomes increase. Inmany cases, the potential increase in interest payments under a variableinterest rate option is contained by capping the extent to which theapplicable interest rate could rise over specific periods and over theentire life of the loan.Mortgage Payment ScheduleMortgage payments are normally made in monthly instalments.Under either a fixed or variable-interest rate option, monthly mortgageinstalments are structured such that the early instalments covermore interest than principal. This means that the reduction in theloan balance is slow initially but accelerates towards the end of themortgage term (See Box 3).Box 3Distribution of Interest and Principal Paymentsfor a 25-year Fixed-interest Rate Residential MortgageMortgage Loan of TT 450,0008.0 per centYear BandInterestPaymentPrincipalTotal 1 to 5173,62334,767208,3906 to 10156,59251,797208,39011 to 15131,21977,170208,39016 to 2093,417114,972208,39021 to 2537,098171,291208,390Total591,948450,0001,041,951

The Residential Mortgage MarketOn the other hand, if interest rates increase over the life of theloan, then interest payments may be higher than under the fixed rateoption.Mortgage TypesA Conventional Mortgage is a term usually given to a fixedinterest rate, 25-30 year term arrangement with a minimum 25 percent down payment.A Balloon Mortgage has low monthly payments which cover onlyinterest. The assumption is that the principal is paid in a lump sumat the end of the mortgage term. This option could be attractive tohomeowners who expect to sell after a short time to benefit fromcapital gains.A Reverse Mortgage allows individuals to receive payments froma lender against the equity in their homes. Under this arrangement,the lender takes over the property upon the owner’s death. Reversemortgages will appeal to senior citizens who have a home but arehaving difficulty meeting monthly payments such as living andmedical expenses.Prepayment, assumability and portability options:Prepayment privileges, assumability and portability are threepopular options found in mature mortgage markets.The ability to prepay a mortgage is one of the most importantfeatures to a mortgage buyer. The prepayment could come throughlump sum discrete payments or through accelerated payments,

The Residential Mortgage Marketfor example weekly or bi-weekly instead of monthly instalments. Theinterest savings to be derived from prepayment privileges can besignificant (See Table 1).Table 1Interest Savings from Prepayments andShorter Term of Mortgage LoanLoan AmountTT 450,000Interest Rate8.25%Original Payment AmountTT 3,548Original Loan Term300 months (25 years)Without Shorter Term(300 months)PrepaymentTotal Interest PaidInterest SavedNILWith Shorter Term(240 months) 3,568 annually 614,404 471,422NIL 142,982Some lenders allow purchasers of residential properties to assumethe mortgage attached to the property being purchased. This couldbe a significant benefit in a rising interest rate environment when theoriginal mortgage was at lower interest rates. In the case of mortgageportability, the purchaser of a residential property is allowed totransfer the remaining portion of the mortgage on the property beingsold to a property being purchased.

The Residential Mortgage MarketPrimary/Secondary MortgagesPrimary mortgage lenders deal directly with the public. Theyoriginate loans, i.e. they lend money directly to the borrower. Primarymortgage lenders (the banks, the mortgage companies and savingsand loans associations) fund mortgages by mobilizing deposits andissuing mortgage bonds.Primary mortgage lenders then sell the mortgage notes (inpackages, not one at a time) to investors in the secondary market toreplenish their cash reserves so they can initiate more mortgages.The largest buyers of mortgages in the U.S. are the Federal NationalMortgage Association (“Fannie Mae”) and the Government NationalMortgage Association (“Ginnie Mae”). A variety of private financialinstitutions such as banks, life insurance companies and privateinvestors also buy portfolios of mortgage. In Trinidad and Tobago, theHome Mortgage Bank is the main player in the secondary mortgagemarket.10

The Residential Mortgage MarketII. Structure of the Residential MortgageMarket in Trinidad and TobagoThe mortgage market in Trinidad and Tobago has expandedsignificantly in value terms but remains remarkably underdeveloped compared with the main industrialized countries oreven many emerging market countries. In the United States ofAmerica, the United Kingdom and in other developed countries,the mortgage market is typically comprised of a whole range ofinstitutions that are largely dependent on long-term funding sources(mortgage securities). Also, with intense competition for mortgagebusiness, institutions are in constant search for innovative waysto meet evolving market needs.In Trinidad and Tobago, with the sharp increase in personalincomes, housing demand has surged over the last decade. This,combined with a significant expansion in government housingprogrammes, has led to a rapid increase in construction costs andproperty values. Correspondingly, mortgage loans outstanding onthe books of private and public institutions have more than doubledover the decade. Somewhat surprisingly, however, private mortgagelending institutions have been reluctant to tap the market for longterm savings through bond issuance. Moreover, among the traditionalmortgage institutions, there has been limited product innovation toexpand the range of options available to consumers.Structure of the Residential Mortgage IndustryThe primary mortgage market in Trinidad and Tobago comprisesthe commercial banks, the trust and mortgage institutions,merchant banks and the insurance companies (See Table 2).11

The Residential Mortgage MarketIn addition to these private sector institutions, mortgage financingis provided by two specialized agencies: the Trinidad and TobagoMortgage Finance Company Limited (TTMF) and the HomeMortgage Bank (HMB), as well as some pension funds and at leastone credit union.Most of the trust companies and merchant banks are affiliated tocommercial banks. Some insurance companies provide mortgagelending to policy holders through their mortgage administrationdepartments. However, the Insurance Act limits investments byinsurance companies in mortgages to 20 per cent of total assets.Table 2Major Mortgage Lending Institutionsin Trinidad and TobagoCommercial BanksOther Financial institutionsHome Mortgage Bank LimitedScotiabank Trinidad and TobagoLimitedTrinidad and Tobago MortgageFinance Company LimitedRBTT Bank LimitedGuardian Life Insurance LimitedRepublic Bank LimitedMaritime Financial LimitedCitibank (Trinidad and Tobago)LimitedSagicor LimitedFirst Citizens Bank LimitedCL PermanentIntercommercial Bank LimitedEastern Credit Union Society12

The Residential Mortgage MarketPension funds also invest in mortgages, but with similar limitationsas the insurance companies. Most pension plans make mortgageloans directly to their membership through employee home assistanceplans. However, most pension plan mortgage investments are madethrough funds administered by trust companies.Some credit unions have begun to provide mortgage financingto their members; however, the involvement of credit unions in themortgage market is still very limited.TTMF has been in operation since 1961. It was originally apartnership between the Government of Trinidad and Tobago and theColonial Development Corporation of the United Kingdom. Today, it isjointly owned by the Government and the National Insurance Board.TTMF’s original mission is to make residential mortgage financingavailable to low- and middle-income households. Consistent withthis mission, TTMF is a major provider of mortgage financing forgovernment-constructed housing. TTMF has however, broadenedits activities and now also makes large mortgage loans for privatehousing. TTMF does not accept deposits and its activities are financedthrough the issuance of long-term bonds and more recently, througha long-term loan from the Inter-American Development Bank.The Home Mortgage Bank (HMB) is the only institution operatingin the secondary mortgage market. HMB was established by an Actof Parliament to provide liquidity to the mortgage market by buyingmortgages from primary lenders. HMB gets most of its financingthrough the issue of bonds. HMB is a public/private partnership with itsmain shareholders being Colonial Life Insurance Co. (Trinidad) Limited(43.8 per cent), Republic Bank Limited (24 per cent), the Central Bank ofTrinidad and Tobago (12.5 per cent), the National Insurance Board ( 7.5per cent) and Scotiabank Trinidad and Tobago Limited (6 per cent).13

The Residential Mortgage MarketPrivate sector institutions have provided the bulk of mortgagefinancing in Trinidad and Tobago. The private sector’s share in totalmortgage financing rose from 66 per cent in 1995 to 77 per cent in2005 (See Table 9).For several years, the primary mortgage market was dominated bythe trust and mortgage institutions which, in 2003, accounted for 47per cent of total mortgage loans extended by the private institutions.These institutions, most of which, as noted earlier, are affiliated withthe commercial banks, were a natural source of long-term mortgagefinancing since their funding came from longer-term deposits. Infact, since for most of the period the banks faced significantly higherreserve requirements than the trust companies1, it was in their interestto channel both long-term deposits and the mortgage loans throughtheir affiliated institutions.During the period 1995- 2003, the trust and mortgage companiesaccounted for 37 per cent of total mortgage credit outstanding,followed by the commercial banks at 12 per cent, and the insurancecompanies which had a 9 per cent share of the market. Pensionfunds held an average market share of 4.5 per cent over the period(See Table 9).There have been two major structural changes in the mortgagemarket since 2003. First, with the reduction in the reserve requirementson commercial banks’ prescribed liabilities from 18 per cent in 2003 to11 per cent in 2004, the financial incentive for banks to channel longterm funding and mortgage activity to their trust companies declined.Added to this, with intense competition in the mortgage market, bankshave moved to rationalize loan administration in order to achieve1And of 1997, the reserve requirement of the commercial banks was 24 per cent compared with 9 per cent forthe non-banks.14

The Residential Mortgage MarketChart 1Proportion of real estate mortgagesHeld by financial institutions(Average 1995-2003)Proportion of Real Estate MortgagesHeld By Financial Institutions(End of 2005)15

The Residential Mortgage Marketefficiency gains. Accordingly, most of the mortgage accounts of theaffiliated trust companies, along with new loan originations, weretransferred to the parent banks. Trust companies now focus ontrustee operations and investment management.Second, with a significant increase in bank liquidity, banks needingto look for investment opportunities began to hold on to their mortgageloans rather than sell them in the secondary market. Table 3 illustratesthe recent slowdown in the growth of secondary market activity andthe switch to primary market activity by HMB since 2004.TABLE 3PRIMARY AND SECONDARY MARKET ACTIVITYFOR THE HOME MORTGAGE BANK LIMITED/TT M/YEARPRIMARY MARKET1996-699.01997-814.0 (16.5)1998-903.0 (10.9)1999-1,047.0 (15.9)2000-1,160.0 (10.8)2001-1,300.0 (12.1)2002-1,406.0 ( 8.2)2003-1,764.0 (25.5)200465.21,885.0 ( 6.8)200596.52,027.0 ( 7.5)Source: Home Mortgage Bank Limited Annual Reports1The figures in brackets( ) represent percentage changes.16SECONDARY MARKET1

The Residential Mortgage MarketIII. Terms and Conditions in the LocalResidential Mortgage MarketThe Mortgage TermThe typical mortgage term available for residential mortgagesin Trinidad and Tobago is 25 years, though occasionally 30-yearmortgages are available. The maximum term is limited by thestipulation that the mortgage becomes due at the borrower’s retirementage or when he/she reaches the age of 60 (or 65) years. As discussedlater, the Government has moved to ease this restriction in respectof public sector housing.Fixed or Variable-Interest RatesAs mentioned earlier, in the US and the UK, there are clearoptions between fixed and variable-interest rate mortgages. In astandard fixed-interest rate mortgage, the interest rate remains unchanged throughout the life of the loan while in a variable-rate mortgage, the interest rate changes based on pre-determined criteria.In Trinidad and Tobago, most mortgages are deemed to be extended on a variable-interest rate basis since the contract allowsthe lender to vary the interest rate with three to six months’ notice. Inpractice, however, the rate is adjusted rather infrequently. In the faceof a steady reduction of interest rates from late 2004 through most of2005, some commercial banks exercised the option to reduce rateson existing mortgages. Later, in response to the rise in the ‘Repo’rate, some mortgage rates were increased during 2006.17

The Residential Mortgage MarketEligibilityMortgage institutions take account of several criteria in decidingan applicant’s eligibility for a mortgage loan. The most important ofthese are (i) the indebtedness of the borrower, defined as the ratioof the borrower’s monthly debt service payments to his gross income(ii) the instalment ratio, which is the ratio of debt service of themortgage debt to income and (iii) the repayment risk, which iscontained, in part, by the ratio of the size of the loan to the assessedvalue of the property. Information on the applicant’s credit historyis also factored into the decision to grant the loan. Tolerance limitsfor the instalment/income ratio vary from a maximum of 30 per centto 35 per cent while the maximum for the total debt service ratio is 40per cent. The loan-to-value ratio accepted by most lendinginstitutions usually ranges from 75-80 per cent. In exceptionalcircumstances, a few lenders go as high as 95 per cent (see Table 4).The Insurance Act limits loan-value ratios for insurance companies to75 per cent.Table 4Key Mortgage Credit Evaluation RatiosInstalment IncomeTotal Debt Service/Loan-to-ValueRatioIncome RatioRatioCommercial Banks30-354075-80Trust and Mortgage30-354075-80Insurance Companies30-354075-80Home Mortgage Bank30-354075-80T.T.M.F.33 1/340Up to 9518

The Residential Mortgage MarketFees and Closing CostsLenders safeguard their security by insisting that the propertywhich is the subject of the mortgage, is fully insured on a replacementcost basis. Of course, the insurance also safeguards the asset ofthe borrower. The initial and annual insurance premiums are for theaccount of the borrower. Lenders also require life insurance on thelife of the borrower so that the loan is covered in the event of theborrower’s death.There are a number of one-time costs involved in securinga mortgage, which must be borne by the borrower. These includethe application fee, the title search fee, the commitment fee, thestamp duty on the Deed of Conveyance (which allows the transferof the property to the new owner), the stamp duty on the Deed ofMortgage and legal fees. Application and title search fees tend todiffer among lending institutions. In the case of the application fee,these range between TT 500 – TT 1,000, while the title search feesdepend on the type of property and the complexity of the search. Fora mortgage of 450,000, total fees could exceed 1 per cent of thevalue of the mortgage.Prepayment PenaltiesSome mortgage lenders tend to discourage payments made inexcess of the scheduled principal repayments by imposing a prepayment penalty. These prepayment penalties could be as high asthree to six months interest payments. In the face of intense competition in the mortgage market, some lenders are now waiving the prepayment fees, if given three months’ notice by the customer. A prepayment plan that is being offered by at least one mortgage lender19

The Residential Mortgage Marketprovides for 13 instead of 12 instalments per year. As noted earlier,this prepayment scheme will result in savings on interest payments of about 23 per cent.IV. The Public Sector and the ResidentialMortgage MarketTrinidad and Tobago Mortgage Finance Co. Ltd.The sole public sector mortgage institution, TTMF, is the principalsource of financing for the recent significant expansion of the publicsector housing programme. Since 2003/2004, the Government hasconstructed just over 8,200 single and multi-family units. The housingprogramme is geared towards low and middle-income groups andinvolves a sizeable interest rate subsidy administered through theTTMF.The latest variant of the programme announced in the last budgettargets families with a maximum household income of 8,000 permonth and covers mortgage loans up to 500,000 with the followingconditions: 100 per cent financing; A fixed-interest rate mortgage of 2 per cent to be reviewedevery five years; An amortization term of 25 years which could be extended to30 years.20

The Residential Mortgage MarketThe contract contains a unique “transferability” feature whereby,at the death of the mortgagor prior to the maturity of the loan, themortgage liability may be transferred to his/her estate.Home Mortgage BankAs noted earlier, the Home Mortgage Bank has entered theprimary mortgage market in the face of the slowdown of the secondarymarket. In an effort to build its market share, HMB has introducedseveral new options. These include: For existing properties, a choice of a variable-interest rate of 8per cent or a fixed-interest rate of 8.5 per cent, whichbecomes variable upon the expiration of the tenth year; Waiver of insurance premium; 95 per cent financing (compared with a maximum of 90 per centfor other lenders); No penalties for early repayment.Housing Development CorporationThe Government has also introduced a number of innovativeapproaches to assist in financing home-ownership for low andmiddle-income groups. One such approach provides for a Rent-toOwn Programme, targeted at individuals who, initially, are financiallyunable to service a mortgage. It allows these persons to enter into21 pa

The mortgage term or amortization period is the actual number of years that it will take to repay the entire mortgage loan. The total cost of the mortgage is the sum of interest payments plus the amount of the loan. This cost is impacted by the mortgage term and the interest rate. For a given interest rate, the longer the

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