Understand home equity, loan with property as collateral

Seven out of ten Brazilians looking for a loan are unaware of the line of credit in which the property is given as collateral, home equity, according to a survey carried out by Santander Brasil with 1,273 respondents.

For Sandro Gamba, director of the bank’s real estate business, there is a lot of potential for the modality, common in the United States and Germany, to grow in Brazil.

While the total volume of bank loans in the last year reached BRL 664 billion, reaching BRL 4.6 trillion in contracted credit, the home equity portfolio was BRL 13.8 billion, according to data from the Central Bank.

The monetary authority estimates that the modality has the potential to reach R$ 500 billion.

“Interests are lower than other lines of credit, and terms are longer. With financial education, mathematically, it is advantageous”, says Gamba.

The loan can reach 60% of the value of the property, with a payment term of up to 20 years.

Financial institutions offer rates starting at 0.95% per month. In payroll-deductible loans, with installments discounted directly from the payroll, for example, the monthly rate is 2%.

Ownership of the property passes to the institution

Home equity is not a mortgage. During the contracting of the credit, it is necessary to transfer the title of the settled property to the bank through a fiduciary alienation. Only when the debt is paid does the property return to the borrower.

In the mortgage, the property remains in the name of the contractor even if there is a default. In this case, the Court would be called upon to seize the debtor’s property.

Lawyer Marcelo Tapai urges caution in contracting home equity to avoid the risk of losing your own home.

“Due to lack of financial education, indebted families will find it difficult to pay the loan. In the other forms of credit, in the case of default, they only get the dirty name. Placing the property as collateral, they can lose the house”, says Tapai.

Before offering the property as collateral, it is essential to check which fees will be charged by the financial institution so there are no surprises in the loan installments.

Debt repayment ranks first among the main reasons that motivated a home equity loan this year, according to a survey by credit fintech Pontte. Next up is investing in your own business.

Expansion of the modality

The federal government wants to expand home equity. One of the proposals in the Senate is to release the same property to be given as collateral in more than one loan, even if in different banks.

The forecast is that the vote, postponed more than once, will take place after the elections.