Never Leave Money on the Table: Get a Lower Mortgage Rate

Since 2017, the Bahamas’ commercial banks' prime lending rate is 4.25%. This rate has rarely changed - 2011 = 4.75%, 2005 = 5.5% and 1999 = 6.0%. Mortgages in The Bahamas typically are variable rate mortgages that fluctuate with any change in the prime lending rate established by the Central Bank of The Bahamas from time to time.

What factors affect mortgage rates?

Mortgage rates can be affected by current economic conditions, not just in The Bahamas but also worldwide. Changes in the global economy can affect mortgage rates as well, case in point many countries have recently been raising their interest rates to combat inflation.

What options do home buyers have?

For many, securing a lower mortgage rate can mean the difference between an affordable monthly housing payment and one that’s out of reach. Fortunately, there are several strategies you can use to reduce your mortgage costs and save money in the long run.

Let’s break down some options:

Shop around

Comparison shopping is one of the most reliable ways to secure a lower mortgage interest rate, as lenders have different approaches for analyzing risk – the higher the perceived risk to the lender, the higher the interest offered. It is best to meet with multiple lenders to allow them to assess your financial position and risk and then each will provide you with a quotation.

Get Pre-Approved for a Mortgage

Getting pre-approved for a mortgage, in most instances will lockdown your interest rate equation for a certain number of days during the lender’s offer period. Pre-approval for a buyer has tremendous value to a seller knowing that you have already been assessed and approved by a lender and the lender is ready to lend you the money subject to you executing a mortgage and other requisite documents and completing some other procedures (i.e. obtaining an appraisal on the property, the lender’s attorney proving good and marketable title to the property and having any property liens settled, etc.).

Ask the lender ways to lower the interest rate

Basically, every lender charges a fee for securing a loan which is typically assessed based on a percentage of the loan amount. This fee increases the rate of return to the lender above the interest rate charged on the mortgage. So ask the lender if it possible to pay a higher fee upfront in return for a lower interest rate for the period of the mortgage.

Ask the lender if you can get a better interest rate over the period of the mortgage if you pay more equity (i.e. downpayment). Paying more money upfront reduces the amount you need to borrow to purchase your property and in return should lower the lender’s perceived risk – typically, the lower the perceived risk, the lower the interest rate.

Increase your downpayment

For those with excellent credit scores, each 5% increase in your down payment can yield a decrease of 0.125 percentage points to your interest rate. However, buyers with less-than-stellar credit will not experience any savings until they have made a 20% down payment.

Plan ahead and work on your credit score

If you are planning on signing a purchase agreement to buy a property with financing then it is advisable for you to do the following things to reduce your perceived risk. The Bahamas does not yet have a credit score/rating system implemented like in other countries for the benefit of lenders, but nonetheless following these suggestions will help you.

• Reduce your balance on any credit cards and aim to use less than 30% of your credit card limit on each of your cards.
• Asking for higher credit limits on your cards. Having a higher limit with the same balance will lower your overall credit card usage rate.
• Making payments on your credit cards on time. Overdue payments raise a “red flag” to lenders so making at least the minimum payment on time is beneficial.

Access savings through special home buyer incentives

If you’re a first-time Bahamian home buyer, you may be eligible to benefit from existing government tax incentives. While these tax incentives will not directly impact your mortgage rate, they are designed to make home buying for first-time Bahamians more affordable by saving you money.

If you are a Bahamian first-home buyer and purchase a home in your personal name then the Value Added Tax payable on the conveyance value of the property is significantly discounted based on a scale of values up to $1 million.

As a homeowner, the first $300,000 of the value of your owner-occupied property is property tax-free each year.

Which option is best for you?

Though many strategies are available for lowering your mortgage rate, it is wise to discuss your needs with an experienced real estate agent and lender early in the process so they can identify the best options for your financial situation. Additionally, by first taking steps to improve your financial position, shopping around lenders for competitive rates, and discussing with each lender ways to reduce your rate will hopefully increase your chances of getting a better deal on your mortgage. Taking advantage of these tips could save you thousands over the life of your loan.