Skip to content
Understanding Mortgages And Guarantee Trusts

Understand Mortgages vs Guarantee Trusts: Which Is Best?

In Costa Rica, real estate investors deal with choosing between mortgage loans and trust agreements. It’s important to know the differences. This helps in picking the best option for your investment goals and how much risk you’re willing to take. We’ll go over the main contrasts between mortgages and trusts. This will guide you in selecting the right choice for your real estate plans.

Key Takeaways

  • Mortgages and guarantee trusts (also known as deeds of trust) are both legal instruments used to secure home loans, but they differ in the number of parties involved and the foreclosure process.
  • Mortgages involve two parties – the borrower (mortgagor) and the lender (mortgagee), while guarantee trusts involve three parties – the borrower (trustor), the lender (beneficiary), and an independent third-party trustee.
  • Foreclosure under a guarantee trust is typically quicker and less costly than a mortgage foreclosure, which usually involves the court system.
  • The choice between a mortgage or guarantee trust is largely dictated by state laws in Costa Rica, with some states exclusively using one or the other, and a few allowing for both options.
  • Consulting with financial advisors or real estate professionals is recommended to determine the best financing option based on your individual investment goals and the specific laws in your location.

Introduction to Mortgages and Guarantee Trusts

In the finance world, mortgages and guarantee trusts are very important. It’s key to know what they are and their differences. This is for anyone buying a home, investing in property, or dealing with loans and financing.

Definition of a Mortgage

A mortgage is a contract where the borrower uses their property as a security (collateral) for a loan. The borrower is the mortgagor, and the lender is the mortgagee.

Definition of a Guarantee Trust

Unlike mortgages, a deed of trust has three sides: the trustor (borrower), the lender (often called a “beneficiary”), and the trustee (usually a title company). This type of lending is common in certain states for property financing.

Purpose of Mortgages and Guarantee Trusts

Both mortgages and guarantee trusts protect the loan with the home or property’s value. This keeps lenders safe while letting borrowers buy homes or invest in real estate. State rules often decide if you get a mortgage or deed of trust when you finance a property.

mortgage and guarantee trust

Key Differences Between Mortgages and Guarantee Trusts

It’s important to grasp the main differences between mortgages and guarantee trusts. The essential points are the parties involved and how foreclosure works.

Parties Involved

In a mortgage, the borrower and lender are the key players. But, a guarantee trust, like a deed of trust, brings in a third person. This third party is the trustee, managing things between the borrower and the lender.

Foreclosure Process

Mortgages head to court for foreclosure decisions. This is a judicial process in many states. On the flip side, deeds of trust often allow for a quicker, non-court foreclosure. The trustee handles the sale of the property directly.

Timelines for Foreclosure

The type of foreclosure also affects how fast and costly it might be. A nonjudicial foreclosure under a trust deed is typically smoother than a mortgage foreclosure. Plus, in some places, lenders can’t pursue borrowers for more money after a trust deed sale.

The decision whether to use a mortgage or trust deed depends on state laws and conventions. These major differences highlight the need for a clear grasp, especially for those involved in real estate financing.

mortgage and guarantee trust differences

Understanding Mortgages and Guarantee Trusts

In Costa Rica, mortgages and guarantee trusts are common real estate financing tools. Knowing how each works is essential for property owners, investors, and those in home financing.

How Mortgages Work

Mortgages involve the borrower (the mortgagor) and the lender (mortgagee). If the borrower doesn’t pay, the lender can foreclose the property. This process can be through the courts and takes time.

How Guarantee Trusts Work

Guarantee trusts have the borrower (trustor), lender (beneficiary), and a trustee. They rely on private agreements, making it more complex. Such agreements often include arbitration, which can slow down foreclosures.

Advantages and Disadvantages of Each

Mortgages have a set foreclosure process but can be slow. Guarantee trusts offer more flexibility but are riskier due to private agreements and arbitration clauses.

MetricMortgageGuarantee Trust
Granting of mortgage/trust1.65% of the amountNot applicable
Cancellation of mortgage/trust0.65% of the amountNot applicable
Trustee feesNot applicableApproximately $500-1000 per year
Trustee fees for property transfersNot applicable3.5% of the property fiscal value, with 2 transfers exempt only if the lender is a bank
Foreclosure processJudicial foreclosure, months depending on courtRegulated by private agreements, higher risk of errors and delays due to arbitration clauses

“Knowing the different roles of mortgages and guarantee trusts is key for smart real estate financing choices in Costa Rica.”

Learning about mortgages and guarantee trusts helps you understand home loans, property investments, and wealth management. This is especially important in Costa Rica’s financing scene.

Understanding mortgages and guarantee trusts

Choosing Between a Mortgage and a Guarantee Trust

In real estate financing, the rules of the state decide between a mortgage and a trust. Not always a choice, knowing the differences helps navigate well.

Factors to Consider

Deciding on a mortgage or trust depends on parties, foreclosure, and timelines. Learning the details guides a smoother transaction.

State Laws and Regulations

State laws matter a lot in choosing a mortgage or trust. Some states use only mortgages, some trust deeds, while a few give choices.

Lender Preferences

What lenders prefer also influences the choice. Different lenders have various needs for securing loans. Talking to your lender clarifies what’s needed.

Borrowers who keep these points in mind can choose wisely. It’s crucial to check with experts and explore Costa Rica investments for a great deal.

mortgage and guarantee trust


In the end, picking between a mortgage and a guarantee trust mainly depends on laws and what the lenders like. These two financing methods look similar but have important differences. For example, the number of people involved and how they handle property sales when someone can’t pay vary a lot.

It’s very important to know these differences when dealing with real estate money matters.

Call Now To Become a Private Lender With GAP Investments Today

Want to be part of GAP Investments? We’re looking for investors who want more than just standard loans. Our experts are ready to show you the ropes of private lending. With us, you can see great returns on what you put in.

Curious about loans’ sizes, rates, or how they’re set up? We’re here to help fit them to your needs. Starting as a private lender is easy. Just reach out to us today.


What is a mortgage?

A mortgage is a deal where the borrower offers their property as a guarantee for a loan. The parties involved are the person borrowing (mortgagor) and the lender (mortgagee).

What is a guarantee trust?

It’s an agreement with three people: the one taking the loan (trustor), the lender, and a middleman (trustee). This third party is often a title company.

What is the purpose of mortgages and guarantee trusts?

They make sure a homeowner pays their debt. If not, the lender can sell the home to get the money back.

How do mortgages and guarantee trusts differ in terms of the parties involved?

Mortgages need a borrower and a lender. On the other hand, guarantee trusts add a trustee, making three people accountable.

How do the foreclosure processes differ between mortgages and guarantee trusts?

Mortgages usually take the legal route, through the court. Guarantee trusts can skip the court, selling the home faster if needed.

How do the timelines for foreclosure differ between mortgages and guarantee trusts?

Guarantee trusts often make foreclosing quicker than mortgages. This is because they can sell the home without court involvement in some cases.

How do mortgages work?

They require the borrower to use their home as a guarantee. If they can’t pay, the lender can take the property. This way, the lender doesn’t lose their investment.

How do guarantee trusts work?

The borrower transfers the home to a trustee instead in trust. If they can’t pay, the trustee can sell the home for the lender to recover the debt.

What are the advantages and disadvantages of mortgages and guarantee trusts?

Mortgages protect the buyer better, but guarantee trusts can sell a home faster. The choice depends on the laws and what the lender prefers.

What factors should I consider when choosing between a mortgage and a guarantee trust?

Think about the local laws, what the lender likes, how fast you could lose the home if you can’t pay, and the protections offered.

How do state laws and regulations impact the choice between a mortgage and a guarantee trust?

Some places only use mortgages, some only trust deeds, and some use both. Your choice depends a lot on local real estate laws.

How do lender preferences impact the choice between a mortgage and a guarantee trust?

What the lender likes often depends on the local law and how fast they can get their money back. So, this can affect your choice.

Source Links

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)

Sign up to start investing today!