Avia Collinder, Business Reporter
Demand for home-equity loans has shot up as older homeowners make use of equity accumulated on their place of residence to fund basic needs and special projects, new data from lenders show.
More persons are tapping the equity in residential properties to fund tertiary education, invest in other real estate, or even to finance daily expenses and acquire personal assets.
There is some evidence as well, that borrowers tend to pay off these loans speedily, so as not to tie up their property in debt.
National Commercial Bank Jamaica (NCB) said that since October 2012 and July 2013, the bank issued J$1.7 billion in new loans to property owners seeking to pay for home renovations, tuitions, medical and other expenses.
NCB's home-equity loan portfolio has more than doubled in the past two years, from J$2.3 billion at year-end September 2011 to J$3.9 billion a year later, and J$5.6 billion at July 2013.
Jamaica National Building Society, which says it controls 49 per cent of the entire mortgage market, is also making "an aggressive" play for business in the home equity segment, according to Earl Samuels, assistant general manager for group finance and mortgage operations.
Samuels says the society's equity-loan disbursements have increased, but the total loan portfolio itself has declined because repayments are coming in at a faster rate than loans are flowing out.
At March 2012, total home-equity loans were J$3.39 billion, an amount reduced to J$3.15 billion by March 2013 and further to J$2.66 billion at July 2013, amid a total loan portfolio of more than J$26 billion.
JNBS, he said, has been offering home-equity loans for more than 20 years.
"These were initially for education, medical and living expenses, but more recently, their scope has been expanded to include debt consolidation, capital injection and other purposes, in order to satisfy the increased demand and changing needs of our borrowers."
Home-equity loans, however, continue to lag the demand for first-time homes.
"As there is always robust demand for housing however, the requirement for mortgages is significantly greater and will most likely continue to outpace that for equity financing," Samuels said.
At JNBS, home-equity loans are capped at J$15 million or 70 per cent of the property's market value, whichever is lower. The average loan over the April to September period has been about J$5 million, said JNBS.
"The interest rates typically range from 10.5 per cent to 12.5 per cent with a repayment period ranging from 10 of 15 years," said Samuels.
"These terms are negotiable, however, depending on the borrower's circumstances," the JNBS executive said.
NCB's terms also extend to 10-15 years and the upper limit on loans is J$15 million. Interest rates range from 15 to 16.5 per cent, with the upper ranges applied to homes that already have a first mortgage.
Like JNBS, home-equity loans are on the rise, but at a slower pace than first-time mortgages at CIBC FirstCaribbean Jamaica, according District Manager Owen Francis.
He declined to disclose the size of the portfolio, but says interest rates are capped at 11.85 per cent for loans of up to 15 years. However, central bank data values FirstCaribbean's total mortgage portfolio at J$8.5 billion as at June 2013.
"For home-equity loans, the reasons are varied, but they include home improvement, education, debt consolidation and investment," Francis said.
FirstCaribbean also offers a revolving home- equity line for qualified customers, he said. The bank recently surrendered its building society licence, but has merged the business into the banking operation, effective August 2013.
NCB says it provides a "special top-up feature where customers can access additional loan amounts after 24 months of satisfactory debt servicing and availability of payment holidays throughout the life of the loan".