The difference in interest rates between loans in the U.S. and Mexico

If you've ever looked into obtaining financing for a home in Mexico, you will notice that the interest rates for home loans are slightly higher than in the U.S.. There are a few reasons behind this.

The primary reason that the interest rates are higher for loans in Mexico is that there has been no competition in the secondary mortgage markets in order or in the capital markets to purchase these loans.

Financing in Mexico for U.S. citizens began in 2005, when GE Money introduced its "Mexican Dream Mortgage" product. The product was created out of a growing need to provide financing for baby boomers who where looking to buy property abroad.

Since the product is still in its infancy, the market is still changing. Once the loans become more more marketable in the secondary mortgage markets, financial analysts say we will see a drop in interest rates, making them comparable to the rates we would see in the U.S.

It is only a matter of time before we see this happen, as GE Money expects dollar mortgages to surge in 2008.

GE Money's Mexican Unit Expects Dollar-Based Mortgages to Surge

By Valerie Rota

Aug. 28 (Bloomberg) -- GE Money, the financing arm of General Electric Co., expects mortgage loans to U.S. citizens buying homes in Mexico to almost double by 2008 as more baby boomers cross the border to spend their retirement years. Dollar-based mortgage loans will climb to $95 million in 2008 from $53 million in 2006, said Edwin Vega, head of GE's home lending unit in Mexico City. The company expects to lend out $70 million in mortgages to U.S. citizens this year, he said.

GE Money created the dollar-based mortgage market for Americans in Mexico in 2005 to tap into the wave of retirees moving to the Latin American country. Beach-front properties that cost a fraction of what they would in California, Nevada or Florida are luring baby boomers to Mexico. ``The demographics tell us we're on the cusp of a big expansion,'' Vega, 40, said in an Aug. 22 telephone interview.

GE Money began to offer its Mexican Dream Mortgage product after noticing that baby boomers -- who were born from 1946 to 1964 -- were dipping into life-long savings to buy properties in Mexico because banks failed to provide financing for them. The company offers Americans 30-year mortgages in dollars.

The average loan size is $350,000, covering about two-thirds of the average home price of $500,000, Vega said. The median price of a house in Newport Beach, California, by comparison, is $1.6 million, according the California Association of Realtors. U.S. buyers are flocking to places such as Loreto and Los Cabos in the state of Baja California Sur, Rocky Point in Sonora and Yucatan's Mayan Riviera, Vega said.