The Mexican peso has historically devalued an average of 6-10% per year against the US Dollar. This has been a risky proposition for lenders, because in addition to their interest rate, they needed to add this devaluation rate on top. This means they needed to charge an interest rate of 17-18%, which if you could even find a loan in Mexico, was the going rate of interest.
When a loan is peso-based (rather than dollar based), you as a borrower benefit by a fixed monthly payment that actually is like your payment going down. For example, if you had a monthly payment of $6,000 pesos in 1995 when the exchange rate was 6 pesos to the dollar, your equivalent payment in USD would have been $1,000 USD. As of 2004, the current exchange rate was approximately 11 pesos to the dollar, so your monthly payment in USD is actually only $545!! In other words, you’re able to exchange your US Dollars for almost twice as many pesos today than in 1995, and since your monthly payment is fixed in pesos, your payment is actually going down by nearly half. The peso is currently at 12 to 13 to the USD. The actual price of the home has also increased a lot since 1995 which means additional equity – a good argument on it’s own for not waiting.
Although you may be paying a higher rate of interest in Mexico, in addition to being able to use your Mexico home or condo as collateral (and not have to mortgage or sell your personal assets to come up with cash), you’re actually getting a great deal on your loan if it is peso-based because the loan payment is equivalent to going down every year. It is also likely you may write off the interest you pay on your 2nd home from your US income tax return - even if it is located in Mexico. Check with your CPA to discuss your own specific tax situation.
Although there is no guarantee that the peso will continue to devalue as it has in the past, there isn’t anything in the works that would make this change – even in light of an historical low or “weak” dollar that we are currently facing. You have a 30 year peso-to-dollar history working in your favor. (See link at left "History of Peso to USD".) While the Canadian Dollar has strengthened against the USDollar, the Peso has continued to devalue against the USDollar.
Generally speaking, if you can qualify for a USDollar based loan, you will have a much lower interest rate, and it is a faster and less frustrating experience than a MXPeso based loan, which is done through Mexican banks. In the current market, a USDollar loan is the preferred mortgage loan for foreign nationals purchasing in Mexico.
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