Just in time for Expocasa 2014, Costa Rica’s most prominent housing trade show, the top two state-sponsored banks in terms of deposits announced that they will be promoting a new financial product aimed at middle-class house hunters: A 40-year mortgage that would allow qualified Tico borrowers to borrow up to 100 percent of the property value. This kind of innovative, zero-equity financing is believed to have been a catalyst of the downturn of the United States market a few years ago.

 

The banks rolling out the 40-year mortgage are Banco Nacional (BN) and Banco de Costa Rica (BCR). The latter bank’s mortgage offering features a fixed-rate of interest for the first five years of loan, and then it switches to three points above the prime rate published by Costa Rica’s Central Bank for the next 35 years. Under these terms, the annual percentage rate (APR) of one of these mortgages would be approximately 10.05 percent today. It is important to note that in the midst of the global financial crisis, the prime rate in Costa Rica climbed to 11.5 percent in August of 2009.

 

As to the 100 percent financing option, BCR would require borrowers to take on private mortgage insurance valued at 20 percent of the loan amount, according to business weekly El Financiero.

 

BN is offering similar terms, although this bank’s marketing efforts will extend to land purchases, construction financing and even green home improvement such as installation of solar panels to generate household electricity and hot water. The interest rate scheme of BN is different; it starts at 9.10 percent for the first three years before in climbs to 11.10 percent on the fourth year and fifth years. After that initial term, borrowers will face prime rate plus 5.60 percent for the next 35 years. By comparison, the average 30-year mortgage interest rate in the United States in mid-August 2014 was less than 4.5 percent.

 

The maximum loan amount for these new 40-year mortgages in Costa Rica is 100 million colones -approximately $208K at today’s exchange rates, which you can get anytime from The Costa Rica Star. Although these new mortgage products are aimed at middle-class borrowers in Costa Rica, it is important to note that the average annual salary in Costa Rica in early 2014 was estimated at just over $10K per year, according to Revista Summa. It is also the highest annual salary in Central America.