Home' Trinidad and Tobago Guardian : June 14th 2015 Contents SBG4 COVER STORY
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JUNE 14 • 2015
Ingrid Lashley, managing director
and CEO of the T&T Mortgage
Finance Company (TTMF), says the
increase in the mortgage benchmark
rate is likely to have an immediate
impact on new mortgages offered
by commercial banks.
On June 1, the Central Bank increased the
Mortgage Market Reference Rate or MMRR
by 25 basis points from 2.25 per cent, to 2.50
per cent. The rate was introduced in 2011 at
3.50 per cent.
For those not familiar with the rate, it---
along with several accompanying guidelines---
was introduced to give consumers a better
idea of how their mortgage interest rate is for-
Central Bank Governor Jwala Rambarran
has announced, in recent months, plans by
the Central Bank to raise the repo rate in prepa-
ration for a tightening of US monetary policy.
This would involve an increase in US interest
rates, which potentially could make US invest-
ment instruments more attractive to local
But, as the MMRR is also an interest rate,
can it be affected by the rise in repo rate?
More importantly, when the MMRR is
increased, what happens to existing mortgage
holders and people who are thinking about
applying for mortgages?
On the issue Lashley said, "The MMRR
benchmark is relevant to mortgages held by
commercial banks in the main. Further, while
the Central Bank's guidelines require that
downward movement in the MMRR redound
to the benefit of the borrower/mortgagor, they
do not compel such adjustment with upward
"Given this, it is likely that new mortgagors
will experience the upward adjustment imme-
diately. Existing borrowers, however, will expe-
rience a lag in movement particularly where
their risk profile has not changed. In any event,
over the next year or so, mortgage interest
rates offered by commercial banks will move
slowly but steadily upward in keeping with
such movements in the MMRR and the repo
rate," said the TTMF managing director, whose
clients will not be affected by the change.
The Sunday BG also spoke to Resha Seeram
Singh, the chair of the MMRR sub-committee
of the Bankers Association of T&T, to get a
better sense of what factors drive change in
the MMRR and how these affect mortgagors.
The elements that
make up your mortgage
"The MMRR is the rate that is set by the
Central Bank on a quarterly basis and used
by the commercial banks also on a quarterly
basis in determining the mortgage rate that a
client gets for his or her mortgage," explained
The MMRR is a "benchmark" rate which
serves as a base from which mortgage rates
can be determined across institutions. To this
rate, the spread is added.
The spread is made up of all the other factors
involved in setting your individual mortgage
rate. These can include your credit rating, your
debt service ratio, the type of property as well
as the profit that the bank expects to make
on offering you the mortgage.
"Let's say, for example, your mortgage rate
is anywhere between 4.50 per cent and 6.0
per cent. The MMRR is currently 2.50 per
cent. It means that the spread attached to dif-
ferent mortgages could be between 2.0 per
cent to 3.50 per cent " said Seeram Singh.
The two together make up the current posted
interest rate that is your mortgage.
The MMRR does not go up or down in iso-
According to the Central Bank release,
"increases in both the 15-year Central Gov-
ernment Treasury yield and commercial banks
cost of funds" were responsible for the 25
basis points increase.
Yield, in this case, refers to return on gov-
ernment bonds. As the Central Bank increases
interest rates, the price of bonds will decrease.
However, the yields from bonds will increase
because bond prices and yields have an inverse
relationship. The increase in the MMRR is
based on this rise in yield, specifically, the
yield for the 15-year treasury notes. Seeram
Singh explained why this one is used.
"This longer tenor instrument is comparable
to the tenor on mortgages, which can range
up to 30 years," she said. Tenor refers to the
life of the bond or any other loan, essentially,
how long until it reaches maturity.
The MMRR is also pegged to bond yields
because it represents an alternative to other
investments with similar returns banks could
have made, such as lending you money for
Seeram Singh said: "It's like a trade off. If
I have a dollar to invest, like a bank, I can
either lend it to you and there is a rate of
return, which is the posted rate that I am
charging you. Or, I can invest it in a treasury
bond and get the yield that the bond is going
to generate for me. The bond yield basically
has to be worth the alternative."
The MMRR is also influenced by commercial
banks' cost of funds. The cost of funds is the
rate of interest commercial banks pay on their
On June 9, David Dulal-Whiteway, managing
director of Republic Bank, said it was unlikely
that interest rates were going to rise signif-
icantly in near future, even though the Central
Bank had been making adjustments to the
The Sunday BG asked Seeram Singh why
the MMRR would go up, even if there was
little increase in interest rates.
While indicating that she did not want to
comment on Dulal Whiteway's statements as
she did not hear the original context in which
they were made, she said the bond yield and
the commercial bank's costs of funds do not
share the same weighting in determining the
"The reason the MMRR has gone up, by 25
basis points, is largely due to the increase in
the Treasury bond yield. So even though the
cost of funds went up as well, because of the
higher weighting that the increase in the treas-
ury bond carries, that drove the increase in
the calculation of the MMRR rate," said Seeram
Explaining 25 basis points
Most consumers may be inclined to think
of a "25 basis points" increase as a large one,
representing a potentially serious dent to their
A basis point is equivalent 0.01 per cent.
Twenty five basis points will be 0.25 per cent
or ¼ of a per cent. A 25 basis point increase
in the MMRR therefore will be a 0.25 or a ¼
of a per cent increase over the old MMRR,
which was 2.25, bringing it to 2.50. Seeram
Singh used an illustration to show mortgage
holders what this means in dollars and cents.
"Let us take an average mortgage of $1 mil-
lion. Assuming the mortgage is for 30 years
and the client's rate was 5.25 per cent. If the
client's monthly payment is $5,522.04, and
we increase that by 25 basis points to 5.50,
the new monthly payment is $5,677.89. The
difference is about $156. That is how much
extra a client would have to pay on a monthly
Seeram Singh also said that the Central
Bank has instituted a cap by which the MMRR
could be increased to protect mortgagors.
"A client might be concerned that the
MMRR is going up and wonder whether he
or she will have the capacity to pay. However,
over a three year period the client's actual rate
cannot go up by more than 350 basis points
or by the change in the repo rate, whichever
Existing homeowners, therefore, can expect
that their mortgage rate will increase. How-
ever, this will only apply to individuals with
variable rate mortgages. Banks must also pro-
vide notice that the mortgage is increasing.
"Most mortgage contracts give clients 30
days notice for interest rates changes. On the
anniversary date of a mortgage, if there has
been a change in the MMRR, clients get notice
that in 30 days time their rates will be amend-
ed accordingly. Clients will also receive a dis-
closure statement outlining their new interest
rate and payment amount as well as a revised
Depending on the contract, this notice
period could also be either 60 or 90 days.
Seeram Singh added, "It is important to
understand that when the rate changes and
notice is given, this rate will hold for a period
of one year, subject to the next renewal. So
every year, on the anniversary date of the
mortgage, it is subject to re-pricing. For
example, I took my mortgage in August. Every
year in August, my mortgage will come up
This increase will be based on the most
recent MMRR at the time your mortgage
anniversary comes up.
People acquiring mortgages after the adjust-
ment are required to pay the new rates at the
beginning of their mortgage.
"Any new mortgage that is put on the
books from the month of June, onwards, is
valid for three months, June, July, August, so
the benchmark rate would be the 2.50. The
bank adds the margin to come up with the
posted rate at that point in time," said Seeram
The rate for new mortgagors is also locked
in for a year.
Certain categories of mortgages are exempt
from changes in the MMRR.
"It does not currently apply to mortgages
held at TTMF, HMB, credit unions and insur-
ance companies. It is not applicable to com-
mercial mortgages, or mortgages granted
through any kind of special government hous-
ing arrangement like HDC facilities," said
Is my mortgage
going to go up?
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