Mexico’s SHF to Eliminate UDI Loans in 2011
| Date Published | 6/28/2011 |
| Author | Marja Hoek-Smit |
| Theme | |
| Country | Mexico |
June 2, 2011: The Mexican housing agency Sociedad Hipotecaria Federal
(SHF) will eliminate its inflation-indexed Unidades de Inversion, or UDI
mortgage refinancing in 2011.
UDI mortgages are fixed-rate mortgages
denominated in the Mexican UDI inflation-linked currency. With UDI loans both
the nominal mortgage balance and monthly payments move in line with inflation,
resulting in payment uncertainty for the borrower and possible negative
amortization. While initial mortgage payments are lower on UDI loans compared
to peso-denominated mortgages, improving affordability, the credit risk is
higher.
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SHF introduced a new peso mortgage product – the Defined
Payments mortgage—which has a lower initial interest rate than regular peso
mortgages, enabling low-income borrowers to more easily qualify for a loan.
The rate will increase every third year, for a pre-determined number of
years, and the mortgage payment will adjust upwards by a maximum of 4%
annually. The Defined Payments product limits the frequency of payment
adjustments and is anticipated to carry a lower credit risk than the UDI loan.