Panama Mortgage Information
Most banks will offer 70 to 80% financing to foreigners (requiring a 20 or 30% down payment) on existing and pre-construction properties. Leniency is often granted to retirees and others who plan to live in their property. If you make it obvious that you just want to flip the property for a profit, the bank may only offer you 50% financing. If land is purchased with no plans to develop, banks may limit financing to 50% or none at all. In Panama, interest rates are not fixed by the government and fluctuate depending on many economic factors. Over the past 20 years the interest rate has fallen from 13% to 7% and just recently rose by 0.2%, according to de la Guardia. The rate currently agreed upon by banks is 7.5%, but most banks will cut you a better deal. Because so many factors are considered in the negotiation, the offer that you agree upon with your bank is unlikely to resemble that of a person buying a very similar property. Some banks like to offer a very low first year rate and then adjust if after that year, others start you at one rate and readjust it every six months. One investor was offered a 4.5% interest rate the first year on his 10-year property loan. The second year, the rate was adjusted to 8%. Surprised by the lofty jump, he went to complain and was given a 7% fixed interest rate if he added one more year to the duration of his mortgage payments. Most banks will work to keep you happy so you keep your money with them, but you should be careful and do your research. The history, stability and overall reputation of a bank say a lot. The actual process of applying for a mortgage requires that you provide any and all documents proving who you are, your credit status and your total income and assets. Each bank will have a specific list of requirements, but the more you show them, the easier it is for them to get a good idea of who they are dealing with. Communicating with your bank representative is important to fill in any holes, but you will need proof to backup what you say. One bank representative said that she has had people who were denied a mortgage come in crying "But I have this property, and this much in the stock market", but they didn't originally submit any proof of these assets and the whole approval process had to begin all over again. Banks will allow you to send copies of your documents via e-mail or fax to start the approval process, but at some point they will require that the original, signed documents are in their office. The documents can either be presented in person or shipped via DHL or FedEx. If you change any details from the start of the application process, everything will have to be redone. One common mistake is not being clear about whose name the land and mortgage will be registered to. Only married couples can take out a mortgage together. The obvious benefit of putting two names is that the couple's joint salary will give them a better chance to be approved for the loan on a property that may be out of one individual's purchasing capability. If one person suddenly can't make the trip to Panama to complete the necessary procedures, the
mortgage will have to be re-applied for under the spouse's name only. The bank's lending committee will review your application, and assuming everything has been completed correctly, most banks will have a response within five days. The less of a liability that you prove yourself to be, by providing ample proof of who you are and all your valuable assets, the more likely you are to get approved and receive the best possible financing terms. The reasons for being denied a mortgage in Panama are probably similar to your home country. Someone with a very low credit score or negative references, or an income that won't cover the monthly costs of a property, will probably be denied, offered less financing or urged to find a cheaper property. The lending committee's official response comes in the form of a letter to the client with the agreed upon conditions which must be signed and returned. Before everything is finalized, the client must open a bank account in person at the bank, which can be completed in one meeting. Opening the account is free, but you will want to be sure you arrive in the country with enough money to deposit. Some banks may require up to $500, while others, such as Banco General only require a minimum of $50 to open an account for citizens and foreigners. A minimum balance may be required in the future that totals three monthly payments on your mortgage. Clients must also take out life insurance for the full value of the property and fire insurance for 80% of the construction costs. A doctor's appointment in Panama is usually required, for which the person must obviously be in the country. This must be done through a Panamanian company, even if you already have life insurance elsewhere, because of a law requiring Panamanian insurance companies to update the bank as to any changes in the status of your health or insurance. This restricts clients from canceling the insurance after establishing their mortgage. The benefit is that in the unfortunate situation in which the investor dies, the insurance company will pay off the property, which will then belong to the person designated in the investor's will. For a healthy young adult, life insurance may amount to $70 per month, but the price varies based on the health of the client and the price of the property. So assuming you are no longer in your mid-20s and one heart bypass surgery later the whole insurance world is labeling you a liability, plan on paying about $100 each month on insurance. Banks, including HSBC and Banco General, often have affiliate insurance agencies, and will cover the cost of your first medical check up. Fire insurance is about $8 per month. Once the bank is satisfied and has your signed terms of agreement letter, it should take one to two weeks for the promise of payment letter to get to the developer. The property must then be appraised and required permits and certificates must be presented by the seller. Usually, any fees for this are incurred by the bank. Either the buyer or someone with power of attorney must be in the country to sign the deed and register the property under their name or their corporation's name in the public registry to close the deal. If the property is under both the husband's and wife's name, both must be present to sign. You should be prepared to pay about 2% of the property costs to cover closing. The actual fee to register a new property in your name is incurred by the buyer and is around 1% of the property value. You should have a qualified lawyer review all paperwork before signing. If you do not speak fluent Spanish to understand the contract, you are required to hire a translator, which can range from $100 to $250. No documents written in English are recognized by law in Panama.
There is no specific time frame for the whole process and each step depends on the one before it. Things will probably go quicker if you can spare the time to meet with your bank in person to develop a relationship and get all your questions answered at once, and to make sure your application package is complete before submitting it. It is possible to complete the whole process with only one trip to Panama: to open a bank account, get a doctor's appointment if necessary for the life insurance and present the official documents that were requested and sign the title registry. Yes, the documents can be mailed and the registry can be signed by someone with power of attorney, but you might as well do it all at once if you have to be down here anyway. All of this can be accomplished in one week. Once everything is signed, all payments should remain the same except if you don't have a fixed interest rate. A bank cannot change the amount of funding they give you unless you decide to finance less. However, in a situation where the client's financial situation changes dramatically the bank can recall the loan (loss of job, etc.). Also, if the client is buying a preconstruction property and something about the building changes (perhaps it is found out that the contractor never had proper building permits) the bank can recall the mortgage, but will generally offer you the same amount on a different property. These are rare but possible occurrences. Banks also often set up a 2 or 3% fee for paying off your mortgage before its prearranged termination. However, if the early payments are discussed or planned in advance, they can often be waived for specific reasons, not including the fact that you just flipped your property for a $50,000 profit. Sometimes this is not stated clearly – another reason why you should have a lawyer review all documents for you. Overall, do your research, present yourself honestly with all the proof you can think to get your hands on, and be prepared. The mortgage process for foreigners is improving daily, so some of the horror stories about the length of approval are no longer valid. If you are in the position to pay off your loan, you should have no problems getting your mortgage approved.