Thursday, 2 de April de 2020

Mortgage Notes (LH and LCI)

LH-type Mortgage Note

What is it?
The LH – “Letra Hipotecária” – is a type of nominal Mortgage Note issued by Brazilian Mortgages with collateral in the form of real estate credits guaranteed by mortgages. Holders are entitled to nominal credit, some inflation adjustment and interest at a specified rate. The main advantage is exemption from income tax for private investors.
Minimum term?
180 days
Inflation adjustment?


LCI-type Mortgage Note

What is it?

These are nominal Mortgage Notes issued by Brazilian Mortgages; collateral comprises real estate loans backed by mortgages or deeds of trust.

These give their holders the right to credits based on the nominal value, plus pre-defined interest and adjustment for inflation. The main advantage is exemption from personal income tax.

Mortgage Notes are fixed-income securities that are guaranteed by real estate credits offered by banks and mortgage companies. They issue such securities in exchange for a return and use the money to finance real estate credit.

What is the return?

The return is expressed as a percentage of the Interbank Certificate of Deposit (CDI) rate, which closely tracks Brazil’s Selic benchmark interest rate. This percentage normally varies between 80% and 110% of the CDI and is paid on maturity of the security.

What is the term?

Varies from two months to three years. The longer the investor holds the security, the better the rate he will receive on purchasing it.

LCIs are exempt of personal income tax. In many cases, this gives them a better return than Bank Deposit Certificates (CDB).
There is the risk that the LCI issuer will fail. Also, these securities have no secondary market.
Minimum term?

On request.


Percentage of the CDI defined in the contract or a prefixed interest rate plus the IGPM inflation index.