Mortgage rates on new and existing homes are likely to increase later this year, as a result of Monday’s announcement by the Central Bank of an increase in the Mortgage Market Reference Rate MMRR) by 25 basis points to 2.50 per cent.
In a statement on Monday, the Central Bank said: “This up-tick was due to increases in both the 15-year Central Government Treasury yield and commercial banks’ cost of funds. Commercial banks and their affiliated non-bank financial institutions are expected to apply the MMRR–plus a margin–to all existingand new residential mortgage loans that are due to be re-priced from June 1, 2015.
“The margin will be negotiated between the commercial bank and the customerand takes into account the customer’s credit rating, the location of the property, the size of the downpayment and the size and quality of collateral.”
This week’s increase in the MMRR to 2.50 per cent in June 2015 is the first hike in the rate since its introduction in December 2011.
Contacted for comment, Scotiabank TT’s managing director, Anya Schnoor, said: “The MMRR is a variable rate mechanism which was introduced by the Central Bank in 2011.
“The MMRR is an index rate which is tied to most retail mortgages. It is determined by a combination of the average rate on deposits in the banking system as well as the 15-year government bond yield. When market conditions change the MMRR may be adjusted, as is the case this quarter. Mortgages tied to this rate would be adjusted in line with the agreed index mechanism.”
As at December 2, 2013, the MMRR methodology was adjusted to incorporate the 15-year Central Government bond yield rather than the 10-year Central Government bond yield.
In an MMRR fact sheet, the Central Bank stated: “The MMRR will make you aware of changing conditions in the mortgage market. This will enable you to better determine when and why your mortgage rate is likely to change.
“You should anticipate that your mortgage rate can change when the MMRR changes. If the MMRR declines, you should benefit from lower mortgage rates once you have a variable rate mortgage or an adjustable rate mortgage that is due to be re-priced. You should also note that if the MMRR rises, your mortgage rate could rise but your bank has an option not to increase this rate.”
The next MMRR announcement is scheduled for September 1, 2011
