The mortgage guarantee is a home or real estate offered as collateral for the payment of a debt. In this way, you can access a credit.
In other words, a home equity loan is one that has a property as collateral. Thus, in the event of non-payment, the lender may take possession of the asset to sell it and recover the financing granted.
The credit obtained with a mortgage guarantee can be used for various purposes: paying debts, studies, trips, investments, among others.
Another important issue is that it is possible to access a loan with a mortgage guarantee even if the property has not finished being paid in full. Thus, it should be remembered that mortgages are usually long-term, such as around twenty years.
It is also worth noting that the property placed as mortgage guarantee can be allowed to be sold, provided that the money obtained from the transaction is used to pay the loan.
Advantages and disadvantages of home equity
Among the advantages of home equity loans are:
- It allows access to loans to people who do not have liquid savings (in a bank account, for example) for the guarantee, but a property that can serve as collateral.
- It gives greater security of repayment of a loan, so you can negotiate a lower interest rate than if you did not have that guarantee.
- By reiterating part of the previous point, the creditor will be able to have greater assurance that he will recover the money loaned.
- As we mentioned earlier, credit can be used in different ways, that is, the debtor has free availability.
However, this type of financing also involves disadvantages or risks:
- The debtor can lose his home if he defaults.
- You could request that the property be paid in full. In that case, if the person is a year away from paying off their mortgage, they don't qualify.
- The property must usually be exempt from charges, for example, pending taxes that must be paid to the municipality.
Difference between home equity and home equity
From what has been explained, it should be clear that the mortgage guarantee is different from the mortgage loan. The first refers to the guarantee that is offered to obtain a loan, regardless of its purpose (business, consumer or other).
On the other hand, the mortgage loan is one that is requested to buy a property and that is normally guaranteed by the same asset acquired.
Seen in another way, the mortgage loan is a type of financing with a mortgage guarantee where the objective is to invest in those same real estate as backup.