Buying a home will be one of the largest financial decisions of your life. It can feel overwhelming and stressful. But understanding the options available for mortgages in Cayman is a huge piece of the puzzle.
My advice, always, is to speak with a lender before you start looking at homes. Understanding how much home you can afford will help narrow your property search.
It will also put you in the best position when you do find the right home for you. In this fast-paced market, being pre-qualified or pre-approved for a mortgage in Cayman will give you an edge over competing purchasers. And having a pre-existing relationship with a lender allows for a quick closing once you place your offer to purchase.
I sat down with Amanda Bodden, Head of Retail Banking at Butterfield Bank Cayman, to discuss mortgages in Cayman.
Mortgages in Cayman
- What is the average interest rate for mortgages in Cayman currently?
A standard interest rate for a primary residence mortgage in Cayman is Prime Rate plus 0.5% to 1%. Prime Rate is variable, and it is usually possible to negotiate a fixed interest rate with your lending institution.
- What are the term options for Cayman mortgages?
Assuming you are purchasing a property to live in, meaning a home to use as your primary residence, with local banks in Cayman, you can typically secure up to 85% - 90% financing, at a variable rate of Prime plus 0% - 1%, for up to 25 - 30 years.
- Are there zero-down mortgages in Cayman?
I’m not aware of any banks offering 100% financing at this time. The minimum down payment required is typically 10% to 15% of the purchase price.
Mortgage eligibility in Cayman
- What determines your eligibility for a mortgage in Cayman?
Several factors influence your borrowing power. Your income is the primary factor. But other factors, such as your existing debt and expenses, as well as your age and the maximum repayment term available to you, will impact the amount you qualify to borrow. A good guideline is that approximately 33% of your base salary is an ‘affordable’ mortgage payment. That being said, your personal lifestyle choices will influence the amount you should comfortably borrow. The amount that you qualify to borrow and the amount you are comfortable paying every month may be two very different figures. You should consider how often you plan on travelling, dining out, etc., because you may find that you aren’t prepared to give up certain things to afford a more expensive home. A mortgage is a long-term commitment, and you should make sure it is a comfortable one. For a quick estimate of the mortgage you could afford, use our mortgage calculator.
- Can you get pre-approved for a mortgage in Cayman?
Yes, and it is advisable to do so. It is a good idea to find out how much you qualify to borrow even if you don’t proceed and obtain formal pre-approval. Being pre-qualified for a mortgage allows you to focus your search based on what you can afford, and it means you can confidently place an offer when you find the right property. You don’t want to fall in love with a property only to find out after you’ve placed an offer to purchase that it is out of reach. Similarly, you don’t want to search for properties in a particular price range without knowing what you can afford. I should also note that being formally pre-approved for financing can make your offer more attractive than a comparable offer, as it often means a quicker closing.
Different mortgages in Cayman
- How do mortgage rates differ for overseas buyers and residents of Cayman?
The risk profile of an overseas purchaser versus a local purchaser is different. Interest rates are typically about 0.50% - 1% higher for overseas purchasers than they are for local residents purchasing owner-occupied properties.
- What are the lending restrictions for a mortgage in Cayman for non-residents?
In Cayman, non-residents may purchase property without restriction, and the stamp duty assessment is the same as it is for local residents. The only difference is that banks may require higher down payments for non-resident purchasers and charge a higher interest rate due to the different risk profiles mentioned above.
- How does the property type affect your mortgage eligibility in Cayman?
Your primary residence is a lower risk mortgage. You may be relying on rental income to cover your second home or investment property mortgage payments. Because of this risk, banks may extend lower financing levels and charge a higher interest rate for investment properties.
- Is there a difference for First-time Caymanian Purchasers when applying for a mortgage in Cayman?
First-time Caymanian purchasers may qualify for a stamp duty reduction or exemption which reduces the amount of cash needed up front, which may increase your borrowing power.
Mortgage types in Cayman
- What is a fixed mortgage?
A fixed-rate mortgage is when you negotiate a fixed rate of interest with your lender for a specified period, meaning your interest rate won’t fluctuate with Prime Rate movements. The benefit of a fixed-rate mortgage is that you (the borrower) are protected from rising variable rates and fluctuating monthly payments.
- What is a variable mortgage?
A variable rate mortgage means your interest rate fluctuates over the term of the loan. Most variable-rate mortgages in Cayman are tied to the US Federal Reserve Prime Rate, so when that rate increases or decreases, your interest rate will, in turn, increase or decrease. Variable-rate mortgages are the most common type of mortgage in Cayman. Typically, a variable rate mortgage offers greater flexibility on pre-payments without penalty when compared to a fixed-rate mortgage.
Credit checks for mortgages in Cayman
- What is a credit score?
A credit report summarises all credit facilities held by an individual, which includes payment history information.
- Does the Cayman Islands have a credit rating system?
The Cayman Islands does not have a centralized credit scoring or rating system. Local banks do have the ability to share credit information so long as the borrower consents. A bank may also ask you to provide a credit report from other applicable countries.
Refinancing your mortgage in Cayman
- What does it mean to refinance your mortgage?
Refinancing your mortgage typically means borrowing more money against your property, also known as ‘releasing equity’. But it can also refer to the renegotiation of your mortgage terms (repayment amounts, interest rate, payment schedule) or the transfer of your mortgage from one lending institution to another.
- What are the benefits or reasons for refinancing your mortgage?
You could decide to refinance your mortgage for several reasons. One reason might be to secure a more competitive interest rate, which could save you a significant amount of money over your mortgage lifetime. Another reason to refinance your mortgage is to monetize equity in your home. Monetizing the equity in your home gives you cash in hand to pay for large expenses such as university tuition, home renovation projects or even the purchase of another property.
Stamp duty and Cayman mortgages
- Is there stamp duty on mortgages in Cayman?
The Cayman Islands Government assesses stamp duty on registered mortgages (the charge banks place on your property) in the amount of 1% on borrowings up to CI $300,000 and 1.5% on amounts greater than CI $300,000. Stamp duty on your mortgage is a one-time assessment that forms part of your closing costs for a mortgage.
- Can your mortgage be used to pay Stamp Duty in Cayman?
Typically stamp duty is paid in addition to your down payment, and it is not financed. In cases where you already own a property, if you have sufficient equity in the home or are contributing a larger down payment than your bank requires, it is possible to finance stamp duty or other fees.
Chattel and Cayman mortgages
- What are chattels?
Chattels are the furnishings (furniture/appliances) that are included in the sale price of a property.
- Can you borrow against chattels?
Most banks will lend on the purchase price (which may include chattels) or the market value, whatever is the lower of the two amounts. So yes, it is relatively common practice for banks to lend on the value of chattels, provided that the market value of the property (which excludes the value of chattels) supports the agreed-upon purchase price.
Key mortgage terms
- What is a mortgage holiday?
A mortgage holiday is essentially a temporary payment pause. It is also known as a forbearance plan. It is agreed between a borrower and their lender to alleviate short term cash flow issues. In response to the COVID-19 pandemic in March of 2020, most local banks extended some form of payment relief to borrowers.
- What does amortization mean?
The amortization of a loan is the process of spreading the principal amount plus the interest over an agreed time period (e.g. 25 years), resulting in equal payments (sometimes called instalments) that you will make every month.
- What is debt service ratio?
Your debt service ratio (“DSR”) is the sum of all fixed expenses divided by your income. It is a tool that lenders use to determine mortgage affordability.
- What is loan-to-value-ratio?
Loan-to-value-ratio (“LTV”) is the percentage of financing a bank will lend against your property, so a 90% loan-to-value-ratio mortgage means the bank financed 90% and required the buyer to contribute a 10% down payment.
- What is accrued interest?
Typically loan payments are charged monthly, but interest is calculated on the daily outstanding principal balance. Meaning that throughout the month, interest is ‘accruing’ (being calculated daily) for payment at a future date.
- What is annual percentage rate?
Annual percentage rate (“APR”) is the total cost of borrowing money expressed as an annual rate. For example, your interest rate of 4.25% is an annual rate.
Pre-qualify for a mortgage in Cayman
The Cayman real estate market is moving very quickly. Being pre-qualified for a mortgage can be the difference between securing your dream home or not. And lending opportunities can vary from individual to individual and change year on year, so it’s best to always check in with a lending advisor if you’re actively looking to buy.
A big thank you to Amanda Bodden. She is a wealth of knowledge, extremely organized, and a great communicator. Amanda and her team are fantastic to work with, and if you’re thinking about purchasing a property, I highly recommend you contact them. They can help you determine how much you can afford and assist with your pre-qualification.
Email: [email protected]
Call: (345) 815-7603
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