Mortgage: what it is, how it works, and when to hire

The mortgage is a term quite present in the world of real estate, credit, and finance, but it still raises many questions. Although it is widely used as a form of guarantee in loans and financing, not everyone knows exactly how it works, what its risks are, or in what situations it can be advantageous. Since it involves high-value assets and long-term commitments, understanding this concept is essential for those who wish to make safer financial decisions. Generally, a mortgage is related to the use of a property as collateral for obtaining credit. This practice is common among both individuals and legal entities and can have different purposes, such as the purchase of assets, payment of debts, or investments. Throughout this informative guide, you will understand what a mortgage is, how it works, its main types, advantages, disadvantages, and differences concerning other real estate credit modalities.

1. What is a mortgage?

A mortgage is a real guarantee offered to the lender, usually a bank or financial institution, in which a property is linked to a debt. Even after the formalization of the contract, the asset remains belonging to the owner but is legally encumbered until the total value of the loan is paid off. This means that if the debtor fails to make payments as agreed, the lender may execute the guarantee, putting the property up for auction to recover the amount owed. The mortgage is regulated by the Civil Code and must be registered in the real estate registry to have legal validity.

2. How does a mortgage work in practice?

In practice, the mortgage process begins with a credit application. The property offered as collateral undergoes an assessment to determine its market value, which will serve as a basis for defining how much the lender can lend. Normally, the released value corresponds to a percentage of the property's price, varying according to the institution's policy. After approval, the contract is recorded in the registry, officially linking the property to the debt. During the payment period, the owner can use the property normally but cannot sell or transfer it without settling the debt. At the end of the contract, once the debt is paid, the mortgage is canceled, and the property is free from any encumbrances.

3. Types of mortgages

[caption id="6938be89e2edf4c9dafdd1ed" width="736" data-alt="keys; apartment; financing; purchase; rent" data-caption="" data-credit="Jakub Zerdzicki/Unsplash" data-source-id="68f2b8ff98f18c7f5f5e4deb" data-source-name="Disclosure"][/caption> There are different types of mortgages, which vary according to the origin and purpose of the guarantee. The main ones are:

• Conventional mortgage: established by agreement between the parties, and is the most common in the market.

• Legal mortgage: provided by law for specific situations, such as the administration of third-party assets.

• Judicial mortgage: determined by a court decision, generally to ensure compliance with obligations in legal proceedings.

In addition to these classifications, the mortgage can also be defined by the degree, which indicates the priority of the lender in case of the property's execution. The same asset can have first, second, or third-degree mortgage, respecting the registration order in the registry, with lower degrees presenting higher risk for the lender.

4. Advantages and disadvantages of the mortgage

Advantages:

• Lower interest rates: because it has a property as collateral, the mortgage usually offers lower rates compared to unsecured loans.

• Longer terms: allows for extended installments, which reduces the value of monthly payments.

• Use of the property: the owner continues to use the asset normally during the repayment of the debt.

• Access to high credit: allows for obtaining higher amounts, especially when the property is already paid off.

Disadvantages:

• Risk of losing the property: in case of default, the asset may be auctioned to settle the debt.

• Bureaucracy: the process involves property assessment, registry, and legal analysis.

• Additional costs: registry fees, taxes, and administrative expenses increase the hiring costs.

• Less flexibility: the property cannot be sold or transferred without settling the debt.

5. Difference between mortgage and fiduciary alienation

The mortgage is often confused with fiduciary alienation, but there are important differences between them. In a mortgage, the property remains in the debtor's name from the beginning of the contract, even while linked to the debt. In fiduciary alienation, the asset temporarily stays in the creditor's name until the total settlement. This distinction directly impacts the execution of the guarantee. In fiduciary alienation, the recovery of the property in case of default is faster and less bureaucratic, which explains why this modality is more common in today's real estate financing. Still, the mortgage continues to be used in specific operations and private agreements. CASACOR Publisher is a creator of exclusive content, developed by CASACOR's Technology team based on the knowledge base of casacor.com.br. This text was edited by Yeska Coelho.