A lot of people are looking for real estate financing like park view villas and are already thinking about its amortization or complete liquidation in a few years. After all, it is a commitment that, in some cases, requires some restrictions and spending limitations. This is an advantageous option for those who consider only their emotional tranquility.
However, depending on the economic situation in the country and the interest on financing, investing the money available for the amortization of the contract could be more advantageous. Got confused? In this post, we will explain this strategy, but mainly, the concepts and points to consider in relation to the amortization of a loan.
Do you want to understand a little more about the amortization of the financing contract? Check out!
What is amortization?
A mortgage loan, in most cases, has a long term to pay the debt so that the installments are compatible with the buyer’s monthly income. In fact, many people choose to make financial reserves to make a good contribution and reduce the amount to be financed.
When entering into the real estate financing contract, however, there is no obligation to pay it off entirely within the maturities of each installment – it is possible to anticipate some and even complete the settlement. This is the concept of amortization, that is, to anticipate installments of the financing in order to reduce the interest on the contract and its residual value.
The installments of a financing correspond to the division of the value of the financed item, as well as the interest and charges that remunerate the financier, in addition to paying operational fees and insurance, for example.
When anticipating the payment of a installment, the interest accrued for the period up to the due date does not need to be charged, so part of the discount refers to the change in its proportionality in the installment. But are all amortizations the same? We will talk about this in the course of this article!
How does amortization work?
Amortization is a process that happens automatically, whenever the borrower pays a portion of the financing. The debt amortization system is defined by the bank or financial institution, depending on the type of credit, the purpose and the amount.
There are several ways to repay debt on personal loans, real estate financing or consortia. The amortization models serve for the charges and the original amount to be paid in installments over a contract signed by the parties. See some important details below!
Payment of interest
The reduction of interest and charges can be made through the organization of finances to pay the installments within the contracted term. Interest is included in the monthly payments and the debt is reduced without the imposition of fines for non-payment.
The debtor can organize to repay the debt, anticipating amounts to obtain greater advantages. Thus, the rebate will be anticipated and the person will save money. Interest rates are applied according to the amount financed and the term of the contract. The farther the installment is to be anticipated, the more discount it is possible to obtain in the interest.
The amortization of a loan has several advantages, but the main one is the reduction of the outstanding balance. Each time the person pays the installment in advance, he will be taking one more step towards the total settlement of the contract. If you do this, interest will be paid in advance, which will be much lower than if it were paid on the due date of the installment.
The reduction in the value of the debt occurs more quickly with the amortization and the financing can be paid off in less time than originally planned. It is worthwhile for the debtor to anticipate as many installments as possible, as in addition to decreasing the amount of the debt, it will automatically reduce the duration of the contract.
What is the best option for amortization of financing?
There are two main amortization options, the SAC table and Price, and they are defined at the time of the conclusion of the financing contract. That is, the table used for possible amortizations will be informed in the contract at the time of signature, and it is essential that the buyer understands how they work.
The SAC table works as the update of the installment, and is the one that is most available on the market today. When requesting an amortization of a contract that has the SAC table as a reference for this action, the buyer will have the debt balance and the financing interest updated according to the reference rate.
In the Price table, the installment system is fixed and tends to have higher rates than the SAC system. After all, there is no correction index to be applied.
It is worth remembering that, when seeking real estate financing, the advice of a specialist can be crucial to give more information about these two mechanisms within the reality of what is being negotiated. This is because, in addition to considering the timing of the contract, it is necessary to focus when the decision to amortize arises.
What to consider when making the decision to amortize?
This often occurs when the buyer has received unexpected money, thirteenth or another resource has been released and can be used to do so. The first question that is asked is: is it worth having this amount applied or using it to pay off part of the contract?
To answer this question from a financial point of view, it is necessary to compare the profitability of the application and the discount that would be provided by the amortization. But rest assured, as we will explain this concept better in the course of the article.
Whichever is more advantageous should be adopted. Of course, as stated in the introduction, the emotional aspect must also be taken into account. If tranquility is more relevant to the buyer, it is best to amortize.
The second question to ask is: what is better, reducing the value of the installments, keeping the financing term, or paying off the last installments and reducing the time to conclude the contract?
In the first situation, the weight of expenditure on monthly finances will be eased. In the second, the buyer will be released from the financial obligation more quickly. So, you need to consider what is most important for your financial moment.
How to choose the amortization system?
Both systems have their own advantages. When making the choice between one of them, the debtor needs to consider some factors, such as the timing of the financing and its financial conditions. Observe, below, the most relevant aspects for decision-making!
Initially, the buyer must analyze the time he will need to make the full payment of the debt. The SAC system is more suitable for people who are going to sign a contract with a longer-term. The Price system is more advantageous in financing with a shorter payment period.
The SAC table is more interesting for those who will not have significant increases in their income and will be able to keep their financial conditions unchanged. While the Price table, which has a constant share, is more advantageous for buyers who expect an increase in their monthly income over the contracted period.
Financial and banking institutions do the calculations by the two systems, both by the SAC table and by Price. This way, it is easier to analyze the incidence of interest to know which option is the most advantageous, according to the buyer’s situation. One should choose the one that has the least impact on the family budget.
Amortization in real estate financing: can you use the FGTS?
Many workers who work under the celetist regime are upset because they cannot use the FGTS balance outside the rules established by the INSS. The vast majority of Brazilians know that it is possible to use this resource to buy a financed property, but what many were unaware of is that this capital can also be used to repay debts.
In practice, this means that if a person used the FGTS to buy a house, but continued to work with a formal contract, they could use this new accumulated capital to pay part of their debt. In this case, the buyer will be able to reduce the value of the monthly fees of the deal by up to 80%.
This measure can be carried out once a year. For those who have a balance in the FGTS accounts, this is a good way to use the capital, since this resource is retained in a Caixa account, yielding less than the Savings Account.
Furthermore, this is a way of obtaining a way to organize yourself financially, in case the buyer is going through a delicate moment in his finances. In this sense, he can still use the FGTS balance to settle overdue installments, as long as the 12-month period for using the fund is respected.
Should CET be considered?
When thinking about amortization in real estate financing, the owner cannot forget the Total Effective Cost (CET) of the contract. In practice, it ends up being more important than the interest rate. This is because the financing contract consists of many items, such as insurance, fees, adjustments, etc.
All of these amounts are paid by the buyer. So a contract with a small interest rate can be much more expensive than a second, with a higher interest rate – as long as it has a lower CET.
If you had access to unexpected capital, but you don’t know whether to invest or repay the debt, compare the return on the investment with the contract’s CET rate – not the interest rate. However, remember that you are unlikely to have access to a financial investment that pays more than what the bank is charging for financing.
In this case, it is likely to be an investment with high risk, which can be a problem for a person who is looking, precisely, to balance his financial life. Analyzing this scenario, it would be much more advantageous to pay off part of the loaned amount by the bank than to invest.
Now, if you happen to have an amount invested, whose annual yield is higher than the CET of your financing, it may be more advantageous to repay the debt monthly – instead of using a larger share of that capital and losing profitability.
It is natural that many people feel uncomfortable with the monthly fees, wanting to get rid of them as soon as possible. However, this is just one way of looking at the situation. Tuition fees are not a problem for those with economic life in order.
So, worry about creating an emergency financial reserve and cutting unnecessary expenses, instead of focusing all your efforts on paying off the financing.
How to check the behavior of interest to make the choice?
Financial institutions make a thorough analysis of the economic profile of the client requesting the financing. They also assess various trends to identify what are the minimum and maximum rates for the effectiveness of their contracts. With regard to the composition and behavior of the financing interest, they present, in most cases: the costs involved in the operation and the bank spread.
The costs involved in the operation are, for example, the source of the money the bank uses to make the loan. Private banks normally use a portion of savings deposits, while public banks use the applied FGTS balances.
These banks are responsible for remunerating their investors, and the costs of real estate financing contribute to such a reward. The bank spread, on the other hand, is the difference between the interest charged to customers who apply for loans, those who pay investors who leave their values invested in the bank.
The details about the amortization process of a real estate financing are very important and must be clearly informed in the contract to be signed. This ensures that future decisions are made according to what is known to the buyer, which will have no surprises that will leave him dissatisfied with the person responsible for financing.
Finally, it must be said that the behavior of interest rates and their percentage may vary considerably according to the creditor’s profile. Once again, the accompaniment of a consultancy in the real estate itself is able to contribute to the choice of the one that best fits the client’s reality.
Most of the time, amortizing the plan is advantageous. Therefore, it is necessary to understand how to evaluate it according to its criteria and the reality experienced by the buyer who carried out the real estate financing.
Now, you already know how contract amortization in real estate financing works! We believe that it has become simpler to understand how interest and installment rebates work. In addition to all this, it is necessary to be aware of other aspects of the real estate market for a safe property purchase.