Mortgages and surety bonds

To grant a mortgage, the bank requires a guarantee: the most widely used one is the mortgage.

This is a security interest that gives the lender, in the event of insolvency of the debtor, the power to expropriate the asset over which the mortgage was registered and to be repaid with preference from the proceeds of the sale. The mortgage is automatically terminated after twenty years, so loans of longer duration must be renewed.

The mortgage is recorded on the property for an amount higher than the loan amount (in most cases double the amount paid to the borrower) because it takes into account the interest payments due, interest on any arrears, and any other charges that the bank may face in recovering the debt.

Often in loan agreements there is also the use of another type of guarantee, the surety bond (fidejussion), under which a third party other than the lender and the borrower guarantees the debt of the latter with all his own present and future assets. Frequently, the surety is added to the mortgage collateral for maximum protection of the institution granting the loan.