Determining increases in mortgage interest
If the US prime rate is 5.25 percent for the month of October 2018, by how much percent should the banks in the Cayman Islands increase their mortgage interest rate?
Auntie’s answer: As I understand it (and I am not a banking person), the prime rate doesn’t generally affect mortgage interest, which can either be fixed or variable. In Cayman, the banks themselves set their rates. In other words, the interest they charge is not regulated by the Cayman Islands Monetary Authority (CIMA).
However, a CIMA official offered some general information which might be helpful. In most cases, it was explained, variable rates are determined using an established or recognised rate as a base to which the bank would add an additional percentage. The amount that would be added to the predetermined base is a commercial decision of each bank.
If a bank does use the US prime rate as a base, though, “then any movement in that rate might result in a corresponding movement in a variable mortgage rate depending on the terms of the mortgage”.
A final word of advice offered was that it was key that anyone taking out a mortgage should carefully read the loan agreement to understand the terms as well as how and when variable rates can be adjusted.
Since your question is a general one, it is not clear if you have taken out a mortgage or are looking to do so. If the latter, I suggest you check to see what each bank’s terms are.
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Category: Ask Auntie, Banking Questions
Mortgage consumers would be well served by a requirement that banks give notice of the exact change, in monetary terms, to the borrower’s monthly payment, before debit. In other words, don’t just tell me the rate has gone up 0.25%. Tell me that I will be paying another $75/month so I can plan ahead.
The majority of people do take out a mortgage that they can afford. When they sign all of the mortgage papers and the bank has offered them a low interest rate (to entice them to take out the mortgage) they are not expecting the rates to increase so many times per year.
I don’t see the banks decreasing their interest rates too often.
Maybe it is time for Government to step in and put some control on how often per year banks are allowed to raise interests rates.
You do realise that the banks will simply increase their margin right? and us the consumers will lose more? Instead of prime plus 1% the banks will charge prime plus 5%. Instead of government regulation we all need to be prudent and ensure our mortgage is one that we can afford. If there are increases, we need to prioritize our mortgage payments instead of a new cell phone with a monthly data plan.
The problem is that there is a limited supply of CI$, not enough to cover all of the CI$ loans/mortgages actually in place. So the Class A banks have to either have on hand, or have access to, sufficient US$ to cover the difference. Banks thus have to borrow from banks in the U.S. whose interest charges are governed by the Federal Reserve; this is where the U.S. Prime Rate comes in.
It would obviously be better for the Cayman consumer if local interest rates were set by the Cayman Monetary Authority, but as the Monetary Authority can only control and dictate what happens to CI$ this couldn’t work for the above reason.
The way out would be for Government to increase the reserve funding held by the Monetary Authority to enable more CI$ to be printed.
I have a mortgage at RBC and for the fourth time this year, they have increased my interest rate. I am now paying 6.75.
Time for me to shop around and move to another bank.
Because the US Prime rate increased 4 times. No matter which bank it will be the same. https://www.bloomberg.com/quote/PRIME:IND
As far as I know, Scotia and Butterfield banks offer fixed rates. Scotia gives you a choice of 3 or 5 years fixed rate.
I suggest you call Butterfield and ask what is their fixed rate. Please be sure to be seated when you get the rate.
5.6% for 2 year fixed? Based on another rate hike in December and possibly 2 more next year it doesn’t look too bad. Prime will be 5.50% by the end of this year and between 5.75% and 6.25% next year, depending on who you believe.
Get a sterling loan. Low rates, and a currency that is about to devalue significantly.
Cayman variable rate mortgages are usually Cayman Prime Rate [http://www.gov.ky/portal/page/portal/dlphome/employers/prime-rate] plus 1-1.75% depending on your immigration status, term of loan, your age, occupation, collateral (title or security for loan), and other variable or proprietary factors in their assessment of your credit. Cayman Islands Prime Rate is essentially the same percentage and within a calendar day of USA Prime Rate changes as determined by the US Federal Reserve. Sadly though, because the industry is not fee regulated, some banks are free to dictate terms – including charging predatory credit card interest rates of close to 20% on those least able to afford. This is why acquiring controlling stake in unregulated banks like CNB makes perfect sense to similar-minded banking groups.
Many banks in Cayman use the US prime rate as a base. At current it is 5.25%. What this means to the consumer is that if when you get your mortgage you’re rate is offered at Prime +1% then right now you’re rate is 6.25% (5.25% + 1%). If the prime rate goes up like it did in October then your new rate would be Prime (5.5%) +1 or 6.5%. Very few banks in Cayman offer a true “Fixed” rate where it never changes no matter what and usually that is only for a few introductory years as a promotion then it will go to a Prime +% rate.
Auntie did you not check with a bank here?
It has been my understanding that the banks in Cayman do NOT offer a fixed rate mortgage. At least that is what I was told when I got mine.
Has that changed? Very curious to know this.
There are a couple of banks that offer 3 and 5 year fixed rate mortgages, they usually advertise them.
Some do offer it as a special for a few years only then you are are Prime + %.