The MMRR has featured prominently in the news recently. Many people however are not familiar with the term and the purpose of this article is to try and demystify some of the mystery surrounding it. First, a few questions for those of you who have a mortgage.
- Do you know what type of mortgage you have – fixed, variable or adjustable?
- Is there a penalty for early repayment?
- What is the split in your monthly payment between principal and interest?
If you could not answer one or more of these questions, apparently you are not alone. A few years ago, the Central Bank of Trinidad and Tobago carried out a survey and discovered that many borrowers were unaware of key aspects of the mortgage loans. As a result, in September 2011, it introduced the Residential Real Estate Mortgage Market Guidelines. The two important features of the guidelines were (a) the requirement of a Disclosure Statement and (b) the introduction of a Mortgage Market Reference Rate (MMRR). In the case of the former, it was specified that lenders must supply to borrowers a minimum set of information regarding their mortgage loans.
This information includes:
- The amount borrowed and the term (Number of years)
- The type of mortgage (Fixed, Variable or adjustable)
- The MMRR and the margin (explained later)
- When your rate is expected to be reviewed
- The various charges and fees
- An amortization schedule showing the split in payments between interest and principal.
As regards to the MMRR, it is a reference rate which, when added to a “margin” (determined by the lender), will equal the interest rate of the mortgage. The margin is based on the credit history of the borrower, the Loan-To-Value ratio (the percentage of the value of the property that is borrowed) and the location of the property. The MMRR on the other hand is calculated on a quarterly basis by the Central Bank and is a weighted average of yields of applicable Treasury Bonds and the Cost of Funds in the banking system.
The good news (from a borrower’s standpoint), is that if you have an adjustable or variable mortgage that is due to be reviewed and the MMRR has declined since the last date on which your interest rate was fixed, then the lender MUST lower the interest rate on your mortgage. On the other hand, if instead the MMRR has increased, the lender does NOT have to increase the interest rate on your mortgage.
In addition, your mortgage rate can NOT be changed more than once every twelve months on your review date and there is also a ceiling of how much the interest rate on your mortgage can be increased by over any three year period (350 basis points or, the increase in the Repo’ rate – whichever is the larger).
As you can see from the above, the MMRR has a direct effect on your monthly mortgage payments. You should therefore keep a check on it and ensure that you are being charged at the correct rate. To do this, look at the disclosure statement from the lender or if you cannot find it, call them and find out what is your margin, the current interest rate on your mortgage and when is your review date. On the review date, check the MMRR in the newspapers (or online at http://www.central-bank.org.tt/content/mortgage-market-reference-rate-mmrr) and add it to your margin. If the answer is less than the interest rate on your mortgage, call your lender immediately to get it reduced! You can also check our loan calculator online at https://www.gafarrell.com/useful-information/ to ensure that the monthly payment is correct. Should you need any assistance, please contact us (https://www.gafarrell.com/contact-us/) at any of our four convenient locations.
For a recent history of MMRR rates, you can go to http://www.centralbank.org.tt/sites/default/files/MMR%20Announcement%20March%201%202016.pdf
A copy of the history is also shown below.
