The US mortgage meltdown has made it increasingly difficult for US homeowners to borrow against equity in their US residences.  The majority of US lenders with whom homeowners had established Home Equity Lines of Credit for their primary residences have gone out of business. 



Furthermore, the drastic downturn in housing prices throughout many US markets has erased the formerly leveragable equity many homeowners previously had access to.

While the majority of home equity and refinance options have disappeared in the US, there are a number of lenders whom are providing cash-out financing and refinancing for Costa Rica homes.  Due to the rapid change in US credit and real estate market conditions, we are increasingly receiving inquiries from those seeking to tap the equity in their Costa Rica homes.  The majority of foreigners who own homes in Costa Rica own their homes free and clear, as competitive mortgage financing for foreigners only recently became available.  Borrowers who are seeking cash out refinancing are not only doing so in lieu of previously available US options; many homeowners are also securing cash-out refinancing instead of choosing to sell their Costa Rica homes in the current real estate environment, which has witnessed a marked decline in home values in some beachside communities.

Our recent client activity indicates that "cash out financing" represents a timely opportunity for many Costa Rica homeowners seeking liquidity, no longer available through primary residence financing in North America.  Many Costa Rica homeowners bought their properties with cash over the the past five years and they remain unencumbered.  With markedly different credit and real estate market conditions in North America, finding liquidity in their Costa Rica properties represents an attractive option these days for many.  

Furthermore, for those seeking liquidity by selling properties in currently sluggish beach areas, we believe that "cash out financing" offers significantly greater returns on equity over the next 1-2 years vs. selling in Q4, 2008.   Market demand for Costa Rica beach homes is widely known to be somewhat seasonal, with the rainy season (now through Christmas) being the slowest part of the year.  The real estate environment in the US, plus the "election year effect",  have likely exacerbated the seasonality of beach home demand.  We believe that this is a temporary phenomenon and by early 2009, significant capital destined for Costa Rica real estate will "come off the sidelines" and buoy prices in beach areas, where buyers are currently in "wait and see" mode.   

Costa Rica will always remain a small market with a decreasing supply of quality properties.  Over the last few years, it has also become a global brand which increasingly attracts investors from around the globe.  Those seeking to raise cash by selling currently depressed properties will be well served to borrow vs. sell.  For those not personally enjoying their Costa Rican homes, the rental market remains strong along the coast and revenue rentals will likely offset the cost of capital charged by lending institutions.

By Marc Schweitzer
President, Costa Rica Mortgage