Costa Rica expats supplementing pensions by unofficial mortgage lending

Published:  12 Sep at 6 PM
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Expat retirees in Costa Rica have hit on a good way to supplement their pensions by using their savings to lend for mortgages at a healthy rate of interest.

With interest rates in the country at an all-time high, expat retirees who’ve a tidy sum in savings are making good use of it as well as avoiding financial advice scams. Many are setting up as unofficial mortgage lenders, using the easily available credit information services to locate possible customers.

The mortgages of choice are known as ‘balloon mortgages’, and command interest rates of between six and 12 per cent, or even more if the lender believes he can get away with it. Even so, the rates are far cheaper than, for example, credit card balance rates, now running at an average of 40 per cent due to high levels of default.

Costa Ricans are accustomed to being stung with high interest rates on mortgages, with the few reasonable deals available considered very hard to find. Social housing developments are more favoured, with the Bank of Costa Rica offering nine per cent fixed over the first two years, followed by a variable rate adjusted monthly.

Balloon mortgages are basically short-term loans secured on real estate with regular payments over a stated period, and the amount of the principal must be paid before the period ends. Provided a trustworthy borrower can be located, it’s a sure money-generator for the lender.

One savvy expat living on the coast lends only to developers with proven track records in building for resale. He spends a good deal of time checking out potential borrowers, and keeps tabs on them for the period of the loan, employing professionals for advice, the gathering of information and his own tax liabilities.
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