Typically viewed as an option only available to those who are already well off, home equity loans are not as wildly popular in Jamaica as they are in other parts of the world. But two announcements made by Prime Minister Andrew Holness during his recent contribution to the budget debate make it a good time to take a closer look at these types of products.

“Most Jamaicans are not even aware that there is a financial product called a home equity loan,” co-founder of financial technology platform Link2Lenders Jason Dear told the Jamaica Observer.

Through a home equity loan you get a lump sum of money in hand by putting up your property as collateral. Dear said fewer than 10 per cent of his clients use them.

“I don’t know if, culturally, we’ve ever been brought up in that way to use home equity loans. But I can tell you, wealthy people do it, though. There is absolutely no doubt about it. In First-World countries, very wealthy people, that’s how they make their money. They borrow against life insurance, stocks, and real estate and buy more. It’s just a constant cycle of buying,” he added.

His two-year-old company works closely with some of the commercial banks and credit unions in Jamaica but does not itself offer loans. It merely gives consumers a way to compare products when applying for loans or insurance.

Link2Lenders also operates Real Estate Hub, a website that provides listings along with useful resources such as information on mortgage financing and property services.

Dear said, from his observation, Jamaicans typically tap into home equity loans to take care of big, unexpected medical bills or pay down massive debt. Link2Lenders has been trying to get the word out that these are loans that can also be used to generate wealth.

A quick search online showed that some options include JN Bank where a homeowner may borrow up to 85 per cent of the market value of his/her residence or up to $15 million, whichever is less, at an interest rate of 8.5 per cent. Sagicor lends up to 80 per cent of the appraised value of the property, less prior charges, with up to 30 years to repay. NCB gives borrowers up to 25 years to repay loan amounts up to $2 million or up to 15 years for loan amounts equal to or greater than $2 million.

These products, like any loan, should not be entered into lightly and it is best to seek guidance on how to proceed. But for anyone who has sought financial advice and is convinced that a home equity loan would be beneficial, Dear suggests compiling your documents ahead of time as the process can take a while.

“It can take three months because you have to put together a lot of paperwork. You have to do things like valuations and surveys on the property, which can take a few weeks. So what we encourage people to do is to be proactive and start to get those things together from early. Put everything together so that when you do apply, the process can be smooth for you,” he said.

Rates — which are fixed, versus mortgage rates which are variable — are set based on factors such as an applicant’s employment history, age, credit history, etc.

While mortgages typically have a 30-year lifespan, home equity loans usually last for 15 years. It can be daunting to think of years of paying off a loan, especially as one approaches retirement age. Dear noted the upside of getting a home equity loan in the earlier stages of life.

But first you need to actually own a home and this is where the two initiatives announced by the prime minister on March 19 come in.

The first is a policy change that makes it easier for younger people to become homeowners.

“The NHT will reserve up to 10 per cent of the housing solutions in the current housing plan for under-35 years old contributors. Over the next five years, this will result in approximately 4,300 housing solutions being available at 100 per cent financing up to $15 million, subject to affordability levels,” Holness said.

The other initiative is the Revised First Step Housing Programme under which contributors to the National Housing Trust (NHT) have the option to sell their starter unit to the NHT and still have full access to Trust benefits when buying another house.

“What this is going to do, it is going to incentivise private developers to come into that market to build these kinds of starter home units to get young people to invest in them, knowing that they can always come out of the property, save their equity, get their benefit and move to a better property. So we are targeting those young people who are just starting out,” the prime minister said as he deviated from his prepared speech.

“There’s a lot of young people getting work in the BPO sector. They are straddled with rent; they really want to be able — instead of paying rent — to make that investment in a mortgage towards the equity in a property that they can then use to further improve their equity holding in another property,” he said.

It is worth noting that a home equity loan can be taken out on a property that is already mortgaged, such as a home purchased from the NHT. The homeowner just has to pay off enough of the mortgage and check all the other boxes (age, job and employment history) for the deal to make sense to the financial institution offering the loan. The amount that can be accessed will be a percentage of the mortgage you have already paid off.

It remains to be seen if, as Jamaica’s pool of homeowners becomes younger, this translates into more people applying for home equity loans.