The guarantee, which usually relates to immovable property, is one of the ways to get a loan.
Being one of the main modalities of loan in Mexico, the mortgage is a guarantee that a buyer offers to receive the lending. Popular in many countries, the credit line consists of placing a property as a warranty to obtain a loan with lower rates and long deadlines.
If you think about putting your house or apartment on the mortgage, it is important to understand how the process works and what types of mortgage you can choose in Mexico.
How does it work?
The Mexican federal civil code explains that the mortgage is a real warranty enforced to real estate and properties that are not delivered to the creditor, and that allows them, in case of breach of the guaranteed obligation, to be paid with the value of the property, according to the degree of preference established by law.
The mortgage can only be used on specific assets, such as houses, apartments, and large movable assets, such as ships and airplanes. Its action expires after ten years, counting from the moment it can be exercised according to the registered title.
Types of mortgages
There are three different types of mortgages in Mexico: fixed, variable, and mixed. Basically, the main difference is about the amount of money paid in portions to repay the loan.
Choosing one of them will depend on several factors, such as the financial stability of the owner of the property and their preferences regarding the payment of the loan. Learn more about each one of the models.
The main feature of the fixed mortgage is that, all over the life of your loan, you will pay the same amount of money. Regardless of market fluctuations, you will always give the same payment monthly for your mortgage loan. It allows the owner to make long-term financial plans, as there will be no change in the value of the portions.
For this mortgage model, the financial institution or bank offers you a fixed interest rate, which will only be changed if you do not comply with the agreed conditions. They are usually about insurance, non-payment, or wage bond.
However, the fixed mortgage is not one of the cheapest models. Since there is a fixed interest, the financial institutions that offer it regularly assign it a higher percentage than variable interest mortgages.
Unlike the fixed model, the variable mortgage is directly related to the variation of the interbank interest rate, named Tasa de Interés Interbancaria (TIIE), which changes every day.
That means that, if the reference rates are changed, your payments will decrease or increase according to the rate fluctuation. For those who have a financial reservation and would not have serious problems with changeable rates, the variable mortgage can be an interesting option.
Just as the name suggests, the mixed model combines some aspects of the fixed mortgage and others of the variable model, which is great for those who want to pay higher installments when they have more money but would also like to have a stabilized period with portions with the same value.
It works as follows: the bank or financial institution offers the owner a mortgage with a fixed interest rate for some years. For the remaining years, the portions’ prices will follow the TIIE, according to the type of financing defined by the contract.
As an example, the mixed mortgage could provide a fixed interest rate for six or seven years and, after the paid off of these portions, the next ones would have a variable interest following the TIIE.
Considering the change between fixed and variable payment periods, it is possible to say that the mixed mortgage also behaves more similarly to the variable mortgage. However, this mixed model can offer greater ease of payment in the early years, while waiting for better future conditions.
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