How to Cash-Out Refinance Your Property in Mexico

Video Transcript - (with Alex & Amy)

Alex:

One of our core values at MoXi is transparency. It is expensive to buy real estate as a foreigner in Mexico upfront, you have to come out of pocket with a lot of cash. Sometimes it's up to 15% of the purchase price of the home on a purchase transaction. On a refinance transaction there's still a lot of those closing costs, but not as many.

Amy:

Hi, I am Amy with MoXi and I'm here today with Alex Koper our CEO. And we're talking about refinance transactions in Mexico. We get a lot of questions from people who already own property in Mexico about whether they can actually refinance their property or whether it just has to remain as is where they paid cash. And we have a lot of people that are interested in getting money out of their property so they can do other things. What are the opportunities that MoXi has potentially for refinance transactions for people who already own in Mexico?

Alex:

That's a great question and it's a really powerful tool in my opinion. I think MoXi was started in 2017 and we really got operational commercially in 2020, which means there are hundreds of thousands of families that bought before we existed or before there was the opportunity to get reasonable US dollar denominated mortgage financing. Many clients have always thought about their home in Mexico as this illiquid asset where they couldn't ever touch it to leverage it to make more money or accomplish a different goal or objective, and now that's possible with MoXi. I think it's important to note just a couple of things about our program, regardless purchase or refinance, but all MoXi loans are denominated in US dollars. They're serviced in the United States. They all have fixed interest rates with term lengths up to 30 years, 15, 20, 25, and 30 year. No prepayment penalty. They're underwritten just like a US mortgage would be underwritten, so we asked for the same... You and your team asked for the same documents that clients are prepared to provide doing a US mortgage transaction.

The loans fund to escrow, and a refinance or a cash refinance to escrow in US dollars. Cash out refinance proceeds can be used for whatever the client wants, that the escrow deposit goes into their checking account, so very similar to cash out refinance in the United States. The difference being that the collateral is in Mexico, so it's a powerful tool. What we see at MoXi for refinancing cash out refinance is a couple of things. One, on the cash-out refinance side, I think we see this more often, clients want to buy another property. The one they bought already is working out so well. Maybe it's short term rental income they're getting to Airbnb, maybe it's leased out permanently and it's just cash flowing beautifully, and they want to continue to do that and build our real estate portfolio. They want to leverage the asset they already have to buy another one, essentially. It's like it ends up being a two-transaction transaction, because you're cash out refinance and then you have the purchase, nevertheless, but I think that's a common one.

Remodeling expenses, private school tuition, debt consolidation, all of those reasons that you would think about doing a cash-out refinance are the same. It's just an asset that you never thought you could get liquidity out of and now you can.

Amy:

Very interesting.

Alex:

Yep.

Amy:

One of the things we hear a lot is that there's a substantial amount of closing costs in Mexico. What are the fees and costs like on a refinance transaction?

Alex:

That is a good question, and one of our core values at MoXi is transparency. It is expensive to buy real estate as a foreigner in Mexico upfront, you have to come out of pocket with a lot of cash. Sometimes it's up to 15% of the purchase price of the home on a precious transaction. On a refinance transaction there's still a lot of those closing costs, but not as many. And so one big one is ISABI or transfer tax. Depending on the municipality, it's anywhere from two to 5% of the value that's under consideration. In a refinance or cash out refinance transaction provided you're not changing the vesting, meaning you're not changing it from the name of the LLC into your individual name or vice versa or from your LLC into your trust, so long as the vesting doesn't change and the way that you originally purchased the property, you do not have to pay the transfer tax.

It's considered just a financing transaction and it's between two and 5% less than a purchase transaction would be. There are still costs, so there does still need to be a title search and title insurance. There is still escrow. We're going to fund our loan proceeds to escrow who will then fund them to you. There are legal expenses associated with the closing, underwriting costs, so on and so forth, so there are still some costs. A majority of those are netted from the proceeds at closing, so upfront clients are just paying for the services that are needed along the way on a credit card. And then at closing the final amount of those costs netted from the proceeds, so there's not a lot of cash out of pocket when you're doing a cash-out refinance.

Amy:

Very interesting. What if a client already has a loan on the property in Mexico? We know that there are many banks in Mexico that have issued loans and pesos for borrowers to buy in Mexico. What happens then?

Alex:

Really interesting question. Very timely question given the change in the Mexican peso even in the last couple of hours. We do regular refinance, meaning we're paying off other lenders, and that could be with cash out or without cash out, either one that's fine. It works, in some ways it's similar because we're going to get a lien released. We're going to get a payoff quote from that bank, from that financial institution that currently holds the note, and then we're going to make the payment through escrow extinguish that lien in favor of ours. Where it gets a little bit difficult is that some of these lenders that make Mexican peso loans are understaffed departments, maybe we could say, I don't know. And so sometimes it takes a long time to get the payoff letter and payoff quote. Nevertheless, we do it a lot. Our fantastic legal and closing team, they're the experts in making that happen, but we do it successfully all the time. It just has a little extra wrinkle, but that's what we're good at and that's why I think people choose to work with us.

Amy:

That's fantastic. What an opportunity for people. Are the rates the same for a refinance as they would be for a purchase or are those different?

Alex:

Great question. The rates are the same, so we don't charge higher amounts for a rate in term refinance. I think there's a slight, maybe it's a quarter percent higher on cash out refinance, but not a lot, not a big distinction. Our maximum LTVs are a little less on cash out refinance, but as far as the rates and costs and fees and pricing, not a whole lot of difference between those two.

Amy:

That's great. It seems like a relatively easy process. What would you recommend for clients for the next step in terms of documents that they might need to gather for the property itself to prepare for a refinance transaction?

Alex:

First step would be submit an application on our website. There should be a link at the bottom of this page or somewhere on this page for you to get started. A mortgage advisor will follow up to review the application with you and collect any credit documents that we need for credit underwriting. As far as property documents are concerned, especially if you've closed recently, you'll hopefully have this packet of documents, whether that's a digital packet or whether it's a paper packet of documents from your notary, notario, would be important to grab that. That has your public deed, your escritura. That's really helpful to our team to get the process started on the legal side for the refinance. If you don't have those documents or you can't locate them easily, they can be acquired. There's a cost for that and it takes a while, so if you do have them, that's really helpful. But grab those documents, get them imaged, scan them so that we can take a look and your mortgage advisor can help you with the upload to our system of records that can be reviewed by the underwriting team.