They soon realized, however, that it was within reach if they used their savings as a deposit, with mortgage payments for a similar sized apartment on the edge of South America’s biggest city costing less than half the equivalent monthly rent. “It meant a lot for us to start our lives together already owning our home,” Jenifer said after the couple’s dream came true in September with the purchase of a two-bedroom apartment. A dramatic drop in interest rates has sparked a mortgage boom in Brazil, making home ownership feasible for thousands like Jenifer and Fernando and tempting others to trade-up or splash out on a house in the country or by the beach. The surge is welcome for banks such as Brazil’s biggest lender Itau Unibanco, Banco Bradesco and Banco Santander Brasil, whose business loan portfolios have been pressured by the coronavirus crisis. COVID-19 has also triggered record job losses and a spike in home loan defaults, creating a potentially treacherous road ahead for borrowers and lenders. Brazil’s last such boom ended badly, but bankers say this one is different as it is driven by low interest rates, a deep housing deficit and is underpinned by cautious credit models. “The real estate market in Brazil is well below its potential, leaving plenty of room for growth despite economic stress,” Danilo Caffaro, head of mortgages at Itau, said. Home loans surged 49% in October from a year earlier to their highest monthly volume since 1994, data from Brazil’s mortgage association shows, driven by a dramatic drop in the benchmark interest rate to 2%, from more than 14% in 2016. Buying is now far more competitive and each percentage point drop in interest rates brings a mortgage within reach of 2.8 million more families, Brazil’s construction association says. “Low rates make a mortgage much more palatable and allow more and more people to take advantage ... So those individuals not hit by the pandemic kept their acquisition plans,” Cristiane Portella, head of Brazil mortgage association, Abecip, said. HANGOVER WARNING Brazil’s mortgage market remains in its infancy, with outstanding home loans totalling 720 billion reais ($135 billion), or around 10% of GDP, which is less than half the ratio in Chile and a fifth of the share in the U.S. And economists estimate Brazil is around 4.5 million units short of demand, a tantalizing gap for banks and developers. Rafael Menin, CEO of Brazil’s largest low-income homebuilder MRV, predicts between 20 and 30 years of booming house sales lie ahead if rates remain at low levels. Brazilian rates are forecast to rise in the years ahead, a central bank survey gives a forecast for benchmark interest rates of 3% in 2021, 4.5% in 2022 and 6% in 2023. But these are well below those seen during past bouts of hyperinflation. For a graphic on Outlook for Brazil’s benchmark rates: Slideshow ( 4 images ) Reuters Graphic