If you are about to buy a property such as a home, but don't know much about bank financing, this blog post may help clear up some of your questions.
When we talk about buying a home, we always associate it with a mortgage loan. However, the market also offers the option of acquiring the property through a trust (fideicomiso).
Throughout this post we will list the differences between the two arrangements, because it is important that you understand the terms and conditions of each.
To start with the definitions, a mortgage is a security interest placed on a property by public deed, in order to guarantee the fulfillment of an obligation, so that if the debtor defaults, the property is foreclosed and auctioned to pay off the obligation.
A trust, on the other hand, like a mortgage, serves to guarantee the fulfillment of an obligation through a contract in which a person called the settlor, who would be the real estate developer, hands over assets to a third party, called the trustee, which would be the bank, to hold in custody, manage, buy, sell or guarantee obligations to another third party called the beneficiary, who would be the client interested in the property.
In a trust, the property is held in the trustee's name. The terms are specified in the document, and the right to the home is granted to the client once the loan has been paid off, which is one of the benefits and differences compared to a mortgage.
This means that the assets guaranteeing the obligation within a trust are held as a separate estate and do not belong to the debtor, which makes it impossible for them to be seized or legally encumbered.
It is worth mentioning that, when it comes to terms, payments, interest rates and fees, both arrangements are similar.
However, one of the biggest advantages you will find between the two is that a trust will save you not only time, but also help your finances.
Closing costs are lower than those of a mortgage, which can help significantly. At the beginning of a purchase there are various payments, such as the reservation fee, the down payment and the purchase of household furnishings, among others, so this gives you more cash flow to invest in other expenses.
It is also possible for the person to use the trust during its term to secure other loans with different terms and rates. Once the loan is paid off, the property is transferred to the owner at its value at that time.
Although it is not a commonly used arrangement, it is not new in real estate purchases, and several banks offer it among their products.
Before making your purchase, it is important to research the benefits each option can bring you, always making the best decision to acquire your new home.