TriniRealty.com

Access to mortgage financing for residential properties involves some critical steps that must be undertaken by the borrower (mortgagor) and the lender (mortgagee) before contractual arrangements could be completed.

These stages include:

1. the selection of an appropriate property by the mortgagor;
2. the completion of a mortgage application with a licensed mortgage originator;
3. determination of the creditworthiness of the borrower;
4. finalization of the mortgage contract once all conditions have been met

• Borrower identifies an appropriate property either through a real estate agent or direct contact with the owner of the property.
• Borrower ensures that the property identified for purchase has a valid title deed and is free of encumbrances. Common encumbrances include unpaid land and building taxes, use of the property as collateral to secure other loans and court judgments against the property owner.
• Borrower secures the property by executing an Agreement for Sale with the property vendor which specifies the terms and conditions for acquisition of the property. This contract would typically require a down payment of ten per cent with the remainder payable within a period of 90 days.

• Borrower submits the application form to the lender and pays the processing fee once an appropriate property has been selected. Currently, application fees typically vary between TT$500 (for the Trinidad and Tobago Mortgage Finance Company) to TT$1,000 in the case of most commercial banks. This fee is generally not refundable.
• Lender often supplements the information on the application with an interview to clarify any outstanding questions.

• In deciding whether or not to underwrite the loan, the lender reviews the borrower’s application taking account of the age of the borrower, the indebtedness of the borrower, the borrower’s ability to service the loan and the loan-to-value ratio of the property.
• The indebtedness of the borrower is measured by the total debt service ratio (TDSR), which is computed as the percentage of monthly debt expenses including the proposed mortgage installment to gross monthly income. This measure gives a broad indication of the borrower’s ability to meet his/her monthly debt obligations. The industry standard in this regard is currently 40 per cent. This means therefore, that no more than 40 per cent of a person’s gross monthly income must be committed to debt-servicing.
• The installment-income ratio gives an indication of the maximum amount of the mortgage installment for which the borrower is able to qualify. This currently varies between 30-35 per cent of the gross monthly income.
• The loan-to-value ratio, which is computed as the percentage of the amount of the mortgage loan to the market value of the property, gives an indication of the extent of protection available to the lender in the event that the borrower defaults on the loan.

• Lender approves mortgage if requirements are met and issues a commitment letter to the borrower. This letter outlines the terms of the mortgage including the amount of the loan, the interest rate payable, conditions relating to late payments of the monthly installments, penalties relating to early repayment of the mortgage (prepayment penalties) and any other conditions that the lender may deem necessary to consummate the loan process.
• Borrower, if satisfied with the term and conditions of the mortgage, signs the commitment letter and returns it to the lender with the commitment fee. This fee is roughly 1 percent of the total value of the mortgage. In some institutions,this fee is not refundable if the applicant decides not to purchase the property or finds an alternative source of financing to acquire the property.
• Lender, through its attorney, begins the process of preparing a number of legal documents to complete the transaction, the most important of which are the Deed of Conveyance (which may be prepared by the Borrower’s attorney) and the mortgage contract (Deed of Mortgage).
• The Deed of Conveyance essentially transfers ownership of the property from the vendor to the purchaser and therefore allows the purchaser to offer it as security for the mortgage. The Deed of Mortgage represents the loan agreement between the purchaser and the mortgage lending institution and specifies, inter alia, the terms and conditions regarding installment payment, interest rate, the term of the mortgage and penalties in the event of a default.
• There are a number of legal fees that must also be settled in the process of completing the mortgage contract and these are often underestimated by the potential borrower. For sizable mortgage loans, these fees can be quite large and can place additional financial strain on the borrower if they are not budgeted for at an early stage. A list of the common fees that are encountered in closing the mortgage transaction is presented below.
• Borrower registers Deeds of Conveyance and Mortgage by paying the relevant stamp duties to the Board of Inland Revenue. The stamp duty payable for the conveyance of property depends on the value of the property (See Stamp Duty Table). In the case of the Deed of Mortgage, the stamp duty is only charged where the value of the mortgage loan exceeds $315,000 and is payable on the entire sum at a rate of 0.2 per cent.

TYPICAL MORTGAGE FEES

1. The Title Search fees - for some institutions there is a standard fee of $300 while other institutions charge $500 or up to $1,000
2. Stamp Duty to register the Deed of Conveyance;
3. Stamp Duty to register the Deed of Mortgage;
4. Attorney’s fees to prepare the Deed of Conveyance;
5. Attorney’s fees to prepare the Deed of Mortgage.

Valuation Costs: Minimum cost of ¼ of 1% (0.25%) of the Valuated Price