The low bank interest rates in Costa Rica that have prevailed since the beginning of 2020 and especially in this 2021 open an opportunity for Real Estate investors to take a new credit or refinance their current debts.
This past week the Basic Deposit Rate (TBP) reached the historical minimum of 3.20%, the lowest level since 1978. The rate serves as an indicator of the cost of taking out a loan, as it is used as a reference to calculate the interest that the new debt would pay.
Is it a good time to get into debt?
Representatives of the Tico Real Estate sector believe that it is. Specially for those who require financing to comply with an investment plan of convenience, it is a good time to take advantage of the situation and access a credit facility, which will carry an improved fee precisely because of the associated interest rate.
With responsible personal management a mortgage loan at this time can improve people’s economic conditions, as long as it does not reach over-indebtedness. The objective of a loan is to facilitate the achievement of goals, but it must be borne in mind that debts must be controlled and to know to what extent people can commit to more obligations.
What should you look out for?
Before requesting a Real Estate loan, consumers should analyze other factors or conditions in addition to the interest rate. In addition to a competitive interest rate, it is necessary to consider that the credit solution has a logical relationship in the term of the same according to the investment plan (short, medium or long term), the commissions, the eventual costs associated with the formalization of a credit (costs of notaries, experts, stamps, transfer costs) and having a sufficient and permanent income with which an adequate attention to the debt can be projected during its term.
Clients must always make sure to ensure that they have the liquidity to meet that credit and that they do not have too many debts, especially in terms of revolving loans, credit cards, because that can also affect their credit history. Each financial institution has different requirements for different mortgage loan products.
Good time to refinance
If the consumer already has debts, this could also be the time to consolidate or refinance them. It is a good time to analyze the existing options in the financial system versus the conditions associated with current debts and to find more favorable conditions, generating an economic benefit for the consumer.
This option seeks that people consolidate their debts and can improve their economic situation, either with a better interest rate, a longer term or with a combination of both. With the change, clients can free up a part of the resources they use to pay their debts. People who have credits in foreign currency and are not currency generators, is also a good time to analyze the possibility of converting their debts to colones under favorable conditions, thus avoiding assuming exchange risk.
Why did the Basic Rate drop?
The decline in the base rate does not surprise financial experts. The COVID-19 Pandemic has created conditions that make it difficult to place loans and therefore, banks have abundant resources to lend.
There is still a lot of liquidity in the financial system and little demand for credit. The low deposit rates partly reflect that. The low interest rates also reflect the improvement in the conditions for the government’s financing, which have allowed it to attract resources at lower rates in recent months.
Daniel Yepez/ TCRN Staff