Traditionally, an important anchor of the residential mortgage market has been the Approved Mortgage Company Programme, in which most lenders participate. The Program, whose legal basis is the Housing Act and the accompanying Housing Regulations, seeks to facilitate home acquisition by low- and middle-income households by offering preferential interest rates on mortgage loans.
The program, introduced in the 1970s, provides for subsidized rates for mortgage loans, up to certain limits, for households that meet the qualifying income criteria. In addition to a subsidized interest rate set by the Government, the borrower received full tax exemption for interest payments on the mortgage loan. The benefit for the lender was the tax exemption on the interest costs and expenses incurred in raising the funds for the program.
The maximum loan sizes and preferential interest rates applicable to loans under the Approved Mortgage Company Program were changed on several occasions since the program was initiated in 1976. The last change, effected in 2002, set the level of qualifying loans and interest rates as follows:
Mortgage Interest Rate Charged Under The
Approved Mortgage Company Programme
| Mortgage Value | Interest Rate |
| up to 200,000 | 6% |
| $200,001-$200,000 | 6.5% |
| $250,001-$300,000 | 7.0% |
| $300,001-$350,000 | 7.5% |
| $350,001-$400,000 | 8.0% |
Loans in excess of $450,000 were contracted at negotiated rates starting at the base of 8 per cent (see Table Above).
Prior to the amendment to the income tax legislation in 2005, mortgage interest payments on loans outside the Approved Mortgage Company Program were tax exempt up to a maximum of $18,000 per year. The Amendment increased the level of personal allowances for income tax purposes from $25,000 to $60,000. At the same time, it eliminated all deductions for interest payments on mortgage loans. It also eliminated the mortgage tax concessions given to the mortgage lenders under the program. These actions effectively eliminated the attraction of the program for lenders. Thus, while in 2001, loans under the Approved Mortgage Company Program accounted for around 25-30 per cent of total loans from private mortgage institutions, in the last three years private lenders have made few loans under the program. On the other hand, TTMF has expanded its participation in the program such that close to 80 per cent of its mortgage portfolio now covers loans under the program.
The recent evolution of mortgage interest rates in Trinidad and Tobago could be gleaned from an examination of the data on new mortgage loans extended by the commercial banks since 2003 (See Table Below).
In the first quarter of 2004, about 96 per cent of new mortgage loans extended by the commercial banks were contracted at rates between 8 and 9 per cent. As the ‘Repo’ rate started its steady decline in 2004, so too did mortgage rates and by the last quarter of 2004, 36 per cent of new mortgage loans were being contracted at rates between 7 and 8 per cent and 60 per cent in the range of 8-9 per cent. Led by the ‘Repo’ rate, interest rates started to increase in the fourth quarter of 2005 and the share of new mortgage loans contracted at rates between 8.1 and 9 per cent increased to 65 per cent.
Commercial Banks: New Residential Mortgage Loans
| Interest Rate Band | OCT04-DEC04 | OCT05-DEC05 | JUL06-SEP06 | |||
| Value | Per cent | Value | Per cent | Value | Per cent | |
| TT$ | TT$ | TT$ | ||||
| Under 7% | 12,793 | 0.0 | 84,934 | 0.0 | 14,825 | 0.0 |
| 7.1% - 8% | 47,265,436 | 36.5 | 63,820,100 | 34.6 | 31,438,043 | 11.6 |
| 8.1% - 9% | 78,235,302 | 60.4 | 119,079,126 | 64.6 | 236,888,762 | 87.6 |
| Over 9.1% | 3,934,546 | 3.1 | 1,354,784 | 0.7 | 88,518 | 0.0 |
| TOTAL | 129,448,077 | 100.0 | 184,338,944 | 100.0 | 270,365,658 | 100.0 |
The tightening of monetary policy which continued throughout 2006 further affected the cost of mortgage loans. Accordingly, by the third quarter of 2006, only 12 per cent of new loans were contracted at rates between 7.1 and 8 per cent while 88 per cent of loans were contracted at rates between 8.1 and 9 per cent (See Table Above).
The Home Mortgage Bank (HMB) began originating mortgage loans in 2004 at a rate of 9 per cent which was fixed for five years. With the decline in interest rates, which took effect in late 2004,the HMB reduced its rate to 8 per cent variable or 8.5 per cent fixed for ten years. There have been no changes in this rate since December 2004.