Colombian Mortgage Market

Introduction

The Colombian housing market has seen steep house price increases over the past nine years, and the trend does not seem to be changing anytime soon. According to the Banco de la Republica Colombia, the country’s house and apartment prices actually surged by 12.46% (16.85% surge for houses and 8.63% surge for apartments) in 2014. Interestingly, however, new housing prices in urban areas decelerated in 2014. According to BBVA, this could be due to the decrease of subsidies to the middle class in the past years.

Obtaining a Mortgage in Colombia

In general, it is very difficult for foreigners to get a home loan from Colombian banks or lenders. In fact, it is even difficult for Colombian citizens to get a home loan in the country, which is why the Colombian mortgage market remains surprisingly small. According the El Colombiano newspaper, 971,493 mortgages were recorded in Colombia as of 2014, which means that only about 2.82% of adults in Colombia have a mortgage. This compares to a range of over 30% mortgage penetration in many western countries. Even in comparison to other Latin American countries, the market is considered small, as Mexico, Chile, Panama and Bolivia all have a higher mortgage penetration percentage than Colombia. 

Three banks – Bancolombia, BBVA and Davivienda, have nearly 80% of the market share, and they make it difficult for people to access mortgages despite the country’s relatively low and stable interest rates. The improving exchange rate of the Colombian Peso has made real estate in the country attractive to foreign buyers, but many of them must resort to obtaining loans in their home countries due to the barriers put in place by Colombian banks.

Financing Options

“Hipoteca Cerrada o de Primer Grado" (Closed or First Degree Mortgage)

One standard installment loan with very little flexibility. Payments are usually made on a monthly basis, and  payments are equal each period, allowing customers to easily budget around these payments. Each payment is part interest and part principal, but the weight of these two parts changes with time.

“Hipoteca Abierta de Cuantia Indeterminada” (Open Mortgage of Undetermined Amount)

Open mortgages are appealing to customers planning to pay their mortgage in the near future or change the terms of their loan. Open mortgages can be repaid either in full or in part at any time without extra charges, and they can be converted into closed mortgages at any time without extra fees as well. However, interest rates for these mortgages are generally higher.

 

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