Tag: bank lending

Mortgages in Cayman: How much home can I afford?

mortgages in Cayman

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, Senior Manager of Lending at Butterfield Bank Cayman, to discuss mortgages in Cayman.

Mortgages in Cayman

  1. What is the average interest rate for mortgages in Cayman currently?

A standard interest rate for a primary residence mortgage in Cayman is Prime plus 0.5% to 1%. Currently, with prime sitting at 3.25%, the standard mortgage rates in Cayman are between 3.75% to 4.25%.

  • Have Cayman mortgage rates gone up or down?

In March of 2020, the US Federal Reserve dropped the US Prime Rate from 4.25% to 3.25%, and since then, interest rates have remained low.

  • What are the trends for mortgages in Cayman?

Now more then ever, it is tough to predict mortgage trends. With the global health pandemic situation evolving almost daily, it is hard to know how things will look even a couple of months down the road. But all signs seem to point to continued low-interest rates for the next 12-18 months.

  • What are the term options for Cayman mortgages?

Assuming you are purchasing a property to live in, a home to use as your primary residence, you can 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 5 to 10% 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. 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 1% higher for overseas purchasers than they are for residents.

  • What are the lending restrictions for 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 residents. The only difference is that banks may require higher down payments for non-resident purchasers and charge a higher interest rate.

  • 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 non-primary residences.

  • Is there a difference for First-time Caymanain Purchasers when applying for a mortgage in Cayman?

First-time Caymanian purchasers typically qualify for a stamp duty reduction or exemption which reduces the amount of cash needed upfront, 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 fees or home renovation projects or invest at a higher return rate than you are paying on your mortgage.

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.

  1. 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 chattel) 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 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 last year, 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?

Debt service ratio (DSR) is the sum of all fixed expenses divided by your income. It is a tool 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 put a 10% down payment.

  • What is accrued interest?

Typically loan payments are charged monthly, but interest is calculated on the daily outstanding 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

More mortgage questions?

Whether you’re a first-time buyer or seasoned property vet, it is important to feel in control of your property journey. Ask questions. Be informed.

We are here to make this process a seamless one for you, so let’s chat.

Bank Financing In Cayman – Explained

In these last few weeks we’ve seen a significant uptick in new buyers, both locally and internationally, wanting to invest in their own piece of Cayman.  They may be keen to get their feet wet, but many are unfamiliar with buying property in the Cayman Islands and most importantly what to expect when it comes to their bank financing options.  It’s so important for new buyers to educate themselves on what their options are and what they “qualify” for before they start to look at properties.  This ensures there is no guessing on what they can afford, what they may or may not be entitled to, and guarantee a smooth Closing process when they fall in love with a property and make an Offer. Senior Manager of Personal lending at Butterfield Bank (Cayman) Limited, Amanda Bodden, was kind enough to answer some of the most common questions we are asked at Property Cayman.

If you have any additional questions don’t hesitate to reach out to us to learn more.  If we don’t know the answer, we will ensure you are connected with the right person to give you the facts ahead of making one of the biggest decisions in your lifetime – buying a property!

 

Q. How do the bank’s loan terms vary when buying a primary home, investment property & raw land?

The risk profile of an owner-occupied property mortgage is different than that of an investment property or raw land. A person’s primary residence represents a lower lending risk than an investment property which may become less profitable or even loss-making, or raw land which would not provide any income to offset its borrowing costs. Because of this, banks will generally require higher down payments and/or shorter repayment terms on investment properties or raw land than they would for your primary residence. You may also see higher interest rates charged for investment properties and raw land to reflect the higher risk lending.

 

Q. How do terms vary depending on the borrower’s age?

Typically, most banks in Cayman will lend up to age 65, which is the local retirement age. The borrower’s age will therefore be a factor that determines the maximum repayment term. Where a borrower does not have a mandated retirement age (for example, self-employed individuals) we are able to be a bit more flexible on the repayment term of a mortgage. As lenders we must understand the repayment source and verify that it is reasonably going to be available to service the debt over the agreed term. Lending to age 65 is not a strict policy, but it is important for us to understand when and how a mortgage will be repaid when we consider lending beyond retirement age.

 

 Q. What if any are the differences in lending policy & immigration status? 

 At Butterfield, our lending policy is the same for Caymanians, PR Status holders, RERC and work permit holders. We do not have different policies; we have one local resident policy that covers everyone. Our non-resident policy differs in that we will require a higher down payment and likely a shorter repayment term.

Q. What if any are the benefits of paying your mortgage bi-monthly instead of monthly?

 Paying bi-weekly accelerates your mortgage repayment. If you pay half of your normal monthly payment every two weeks you will essentially make 13 payments each year instead of 12. On a longer-term debt this can save quite a bit of interest and repay the debt earlier. At Butterfield we offer weekly, bi-weekly, and monthly payment options.


*The responses to these questions are specific to Butterfield Bank (Cayman) Limited and do not represent the opinions/ lending policies of other banks. Buyers are free to use any lender of their choosing when buying a property.