International Costa Rica real estate buyers are taking advantage of low interest rates from U.S. and Canada.
This is an exciting time in our lives. People are reprioritizing and wanting to include more value in their portfolios, not just more money. And those who want to look after both sides are taking advantage of the lowest interest rates on record and investing in Costa Rica real estate.
Mortgage rates in the U.S. and Canada are exceptionally low as a result of low interest rates. Most first-world nations have lowered banking rates to bolster their economies which have been battered by the pandemic. Low rates are intended to provide opportunity and increase economic activity. They have helped and they might be able to help you by providing the funds to build a life in Costa Rica.
Inventory on Costa Rica properties is getting low while Costa Ballena properties are still at accessible prices when compared to tropical properties in the U.S. or Mexico. Prices for Costa Rica real estate are temporarily being influenced by changes in the world markets—staying stagnant when they should have been growing—but they are also attracting the attention of new foreign buyers who have access to equity.
Cheaper sources of cash for investments
Because of low interest rates, financial vehicles such as mortgage re-financing, home equity loans, and home equity lines of credit (HELOCs) have become more attractive as ways to fund investments in Costa Rica and elsewhere.
▪ Re-financing to a Lower Rate
In this strategy, you negotiate an entirely new first mortgage for your home. It replaces and pays off the old mortgage leaving you with a single monthly payment that is lower than you previously made. In addition to a lower payment, many lenders will allow you to “cash out” some of your equity – the new loan will pay off your old loan plus put some money in your pocket. The allowed amounts are not generally large, not enough to purchase a home, but enough to supplement your cash and maybe allow you to purchase your dream home in Costa Rica.
▪ Home Equity Loan
This is the well-known second mortgage wherein you negotiate a second loan on your property, use the cash for your own purposes, and pay the loan off over time. Interest rates on second loans are typically slightly higher than first mortgages. However, since rates in general are so low, second loans are now attractive, especially if your first mortgage already has a low rate.
Not only can you borrow equity on your primary residence but investors with income properties in their home country (rentals or commercial) can borrow at more accessible rates for cash to buy a Costa Rica home, rental or business. Accessing equity in U.S. or Canadian holdings other than a primary residence is not the easiest but it is possible and a real option for those looking for ready cash. With interest rates at record lows, property investors can take out all of the equity on any property that they have a mortgage. These investors are using other people’s money to fund their new life in Costa Rica, however they envision it.
▪ Home Equity Lines of Credit
Lines of credit set an upper limit that you may borrow from your home. You can then use any amount, up to that limit, and then repay over time only what was borrowed. The amount you borrow is up to you and your payments will reflect the amount owed. This works sort of like a credit card except the rate are very low in comparison.
The interest rates on these three sources of cash have always been low due to their being guaranteed by the equity in your property. Now, they are much more attractive due to the historically low lending rates we are now seeing. Low interest rates have sparked higher activity in all three. One of them may very well work for you.
The impact of low interest rates on local real estate markets
In the U.S. and Canada, low interest rates have made home ownership cheaper. More people can afford a home and the demand for homes in many areas is going up. However, due to the pandemic, there is uncertainty among homeowners and not enough houses are being offered for sale to meet the new demand. This imbalance is putting upward pressure on prices and is diluting the benefit of the current low rates.
In Costa Rica, interest rates do not impact real estate prices like they do elsewhere. Real estate here is not typically purchased using bank financing. Full cash offers and occasionally seller financing are the norm. Pricing responds primarily to demand from foreign buyers. Due to the pandemic-induced travel restrictions and financial uncertainty, demand is now low. Pricing is being reduced which is good, of course, for new buyers. However, due to a variety of reasons including lowering prices, many property owners are reluctant to sell right now. Inventory, the quantity of properties for sale, is shrinking. Serious buyers looking for high value for their money need to take quick action or others will. Purchase funds need to be in place before searching for properties. For those without a family fortune, tapping into your equity, as described above, can be an inexpensive and easy way to move forward and build a new life in Costa Rica.
Remember, all the great things you have heard about Costa Rica are true – the tranquility, the beauty, the renewal, the community, and the ease of life. Right now, if you want to, you can find a property you will love for a price that might surprise you.