Panama Real Estate Mortgages
Residential mortgages are available in Panama for foreigners. However, there are a few differences. For instance, North American mortgage lenders rely on the applicant’s ability to pay along with credit history. Panama mortgage lenders rely on loan-to-value ratio and the ability to pay.
Panama mortgage lenders prefer 10 to 15 year terms rather than the standard 30 year terms found in the U.S. Down payments are normally 30% of the sales price which is higher than what Panamanians pay.
More documents are required of foreigners than citizens.
Here are the usual documents required by Panama banks for a foreigner to obtain a residential mortgage in Panama:
• Bank mortgage application;
• Entire passport photocopy (certified copy if not present at the bank);
• An additional photo identification photocopied (like a driver’s license);
• Recent utility bill including applicant’s name and home address;
• Credit report (from companies like Equifax, Experian, or Transunion);
• CV (resume) showing education and work history;
• 2 original bank reference letters;
• 2 original commercial or professional reference letters;
• Bank statements for the last 12 to 24 months photocopied;
• Income tax returns from the previous 2 years (or financial statements audited);
• Letter explaining sources of income and reason for purchasing the property;
• Immigration status proof (if you over stayed the tourist visa period);
• Property appraisal from a bank-approved appraiser;
• Receipt of the purchase contract and down payment.
Authentication: Panama banks require all documents from other countries to be “authenticated” either through a Panamanian consulate or by “Apostille” which is a globally recognized type of a government certified authentication of public records.
Self-employed applicants are also required to provide these additional documents:
• Information about the company (name, physical address, phone numbers, website URL);
• A letter describing the history of the company and the type of business the company is engaged in;
• Last 2 years audited financial statements;
• 2 reference letters from companies applicant did business with; and
• 2 original bank reference letters for the company.
Life insurance is also required naming the Panama bank as the beneficiary for the full loan amount. Since the policy is based on the applicant’s life expectancy, it is more expensive for older applicants.
Fire insurance policy on the structures for at least 80% of the loan amount is also required.
The process for releasing funds entails:
• Deed transferring ownership filed in the Public Registry;
• A copy of the filed deed delivered to the bank; and
• Proof that the loan was filed as a mortgage lien on the property in favor of the Panama bank. (In essence, the bank does not disburse the funds to the seller until the bank’s security is in place.)
Things to watch out for in the loan documents include:
• Late payment penalties where there could be as much as a 2% interest rate increase for a late payment. There are no “grace periods” for late payments.
• A clause requiring payments to a “specific branch” which may not allow auto-debiting from the applicant’s account or internet banking.
Fixed monthly mortgage payments will be required by every Panama bank. There are no adjusted interest rates in Panama. Each payment includes from 85% to 90% interest while the remainder reduces the principal. The accrued interest will make the applicant pay four times the original loan amount over the 15 year life of the loan.
Tip: Paying bi-weekly instead of monthly will save you money and pay off the mortgage sooner. Bi-weekly mortgage payments involve making a half month’s payment every two weeks. That’s 26 payments a year amounting to 13 monthly payments instead of 12. The extra month’s payment is applied directly to the principal and can shave four years off a 15 year loan resulting in slashing your interest payments by 27%. However, some Panama banks have mortgage contracts preventing any pre-payments or reduction of principal for the first five years. If it contains such clauses negotiate with the bank to allow for pre-payments. If you become discouraged, hire a knowledgeable Panama real estate lawyer to negotiate with the bank.