Finance professor at the Getúlio Vargas Foundation, Luís Carlos Eswald recently argued that repayment period lengths under current Brazilian mortgage finance agreements are unfair. Speaking to the Globo news site, he stated: “on the government´s side there have been excellent incentives and applied measures to stimulate the sector – however, when undertaking a simulation of the commitments, the relative difference between a 20 year and a 30 year amortisation period is very small. This is essentially tricking the low income groups who are not up to scratch with financial terms.”
Providing an example, the professor went on to comment that: “if you apply an interest rate of 9% per annum on a property value of R$ 100,000 over a period of 30 years – the monthly installment is going to be R$ 798. If the same rate was applied over 25 years, the installment calculates at R$ 832 – or, in other words, a difference of only R$ 34. If you apply the same rate over 20 years, the difference is R$ 95. There is a need to demonstrate this to the Brazilian public as the difference lies not only in the product itself but in the level of interest rate – which is far too harsh.” It should be noted, however, that on a property valued at R$ 100,000, Caixa Econômica Federal is currently offering an interest rate of 7.16% plus the referential tax rate (taxa referencial) via the Minha Casa, Minha Vida (“My House, My Life”) program.
He also outlined that people should not feel rushed into purchasing property: “prices are over-valued; there is a lot of supply on the market and many people who are struggling to sell. Those who are nonetheless keen to purchase, should search calmly and always negotiate to achieve a good deal. There is no point having a low interest rate if the value of the asset is high.”