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Mortgage 101: Interest Rates

The ‘Mortgage Market Reference Rate’ (MMRR) is the interest rate benchmark that forms the basis for the pricing and re-pricing of residential mortgages granted by Commercial Banks. The banks’ mortgage interest rate is based on the MMRR plus a margin which is negotiated between the lender and the customer. In the Disclosure statement, the lender must indicate the contract period for which the rate is applicable (e.g. one (1) year, three (3) years, etc). It is on this anniversary date that the commercial bank will have the option to re-price the mortgage based on certain parameters specified in the guidelines provided by the Central Bank of Trinidad and Tobago.

Trinidad and Tobago Mortgage Finance Company Limited (TTMF) is not included in the financial institutions to which MMRR would apply. Thus, our rates are less likely to move as often as may apply under the MMRR guidelines.

TTMF continues to support the Government’s housing policy in respect of the provision of adequate housing and affordable financing to the citizens of Trinidad and Tobago. To this end, the 2% mortgage financing regime provides for up to 100% financing for the purchase or construction of properties valued up to $850,000 to persons earning up to $10,000 monthly. The 5% mortgage programme offers an opportunity for persons earning up to $30,000 monthly ($25,000 for properties from Trinidad and Tobago Housing Development Corporation (HDC)) to acquire a property valued up to $1.2M. Our Open Market customers, those who do not qualify for the Government’s subsidized interest rates or who secure loans for purposes other than the acquisition of property, enjoy a stable interest rate of 7%. That is not to say that our interest rates are fixed, but they are relatively stable. TTMF’s Open Market interest rate was reduced from 8% per annum to 7% per annum in October 2012. Before that, the last change in interest rate was in the late 1990s.

The interest rate on the 2% mortgage portfolio increases by 0.5% per annum on the anniversary date of the loan until it reaches 5%, the next tier of the subsidized mortgage rates for properties valued up to $1.2m. The 5% mortgage increases by 0.5% per annum on the anniversary date of the loan to a maximum of the current best customer (Open Market Rate), currently 7% per annum.

The cost of borrowing is not limited to the interest rate. Variations in the interest rate, penalties for lump sum payments or prepayments of the mortgage, mortgage indemnity insurance, and legal costs, all contribute to the total cost associated with mortgage financing. At TTMF, there are no penalties of any kind. Lump sum payments and prepayments are accepted at any time. With no lump sum or prepayment penalties, customers can manage the cost of the mortgage (the effective interest rate) by making such payments over time. An added benefit of the making lump sum payments is to reduce the term of the loan, allowing for earlier repayment. The management of interest cost is entirely up to the borrower.

TTMF’s stable interest rate and/or the predictability of increases where they occur, make it easier for the homeowner to budget and manage their financial affairs resulting in wealth accumulation over the term of the mortgage. At the end of day, our customers are fairly insulated from the market fluctuations that the impact of the MMRR can bring.