The acquisition of a property through financing has been one of the main options made by the Brazilian population in recent years. However, failing to pay off real estate financing is a common fear among investors. One of the problems that the customer ends up encountering is the payment term that can last up to 30 years (360 months). But does this extended period make payment impossible?
To help you better understand the subject, we have prepared a complete article on how the advance of installments works and what are the advantages of this practice. We will point out the best option to pay off the financing or invest the money and show the importance of understanding about interest and fees and knowing how to calculate costs.
Need to understand a little more about this topic or related topics? Read this content by Blue World City to the end!
What are the types of amortization?
Before explaining the various possibilities that the buyer has to pay off his debt, it is important to understand the two most common ways of calculating the financial amortization of a mortgage.
Constant Amortization System (SAC)
In this system, the installments that will be paid are composed of the financing amount plus interest. However, this interest is calculated on top of the remaining amount of the debt. That is, as the buyer pays off his financing, the fixed interest rate is incurring an ever lower amount. Therefore, installments fall in price as they are paid.
Let’s take an example: in a real estate financing in the amount of R $ 100 thousand, paid in 360 installments, with an interest rate of 0.72% per month, the first installment will be R $ 997.77. This amount comprises R $ 277.77 of debt amortization and R $ 720.00 of interest.
The last installment will be R $ 279.00, an amount that represents the final payment of the property (R $ 277.77), plus the product of interest on the remaining debt, in this case, R $ 1.99.
The Price System (or Price Table) has fixed installments. What changes is the way these plots are composed? In the first monthly installments, there is a higher interest burden than debt repayment. Over the months, this situation is reversed.
Using the same values as in the previous example, including the interest rate of 0.72% per month, we have the following result: the first installment of the loan is R $ 778.85 and it is the result of the following sum: R $ 720.00 (interest ) + R $ 58.85 of amortization.
The last installment of the financing costs the same R $ 778.85 as the first. However, debt amortization corresponds to R $ 773.28 and interest is only R $ 5.56.
Remember that this calculation was just an example, with the aim of helping to understand the two systems. Therefore, the values of financing and interest rates are hypothetical and do not necessarily correspond to the reality of the market.
How to pay the financing?
Now, let’s understand what other factors can help you pay off your mortgage.
Decrease in the term of real estate financing
Repaying your debt, reducing the total term to pay off real estate financing, will result in a recalculation of the outstanding balance to continue with the values of similar installments. The advantage of using this modality is that the payment time is shorter and there is a possibility of quicker settlement, as the term will no longer be as long.
The amount is deducted directly from the outstanding balance. You can do this if you have money invested that is not yielding much, an application in savings, for example. In this case, it is more intelligent to invest this capital in the payment of the debt, reducing the installments and the impact of interest on them, than to leave this amount yielding little in a low-risk application.
Reduction in the value of the financing installments
Repaying your financing, reducing the value of the installments , will end up in a recalculation of the outstanding balance to continue with the same term. That is, you will have the same time to pay, however, the monthly installments will be smoother.
The advantage of using this modality is that you can capitalize more easily when paying your installments, and your monthly expenses will be reduced. The amount, here, also deducts directly from the outstanding balance. It is an option aimed at security in the medium and long term.
Advance payment of financing
It is possible to advance the payment of the financing installments and still obtain several interesting benefits. Advancing payments reduces the total time to settle the account, lowering interest. This is guaranteed by the Consumer Protection Code (CDC), which imposes the granting of discounts by creditors.
If you are able to pay off a portion of the loan, vehicle or property before maturity, ask the institution for the appropriate discount. Look for the creditor and talk about the possibility of anticipating the amounts financed, request the reduction of interest on the boleto and obtain information on the procedures to be carried out.
Institutions that finance movable property, real estate or cash amounts include charging interest on the total amount granted. But these charges cannot be collected if the discharge happens before the deadline. If you receive the 13th salary and decide to advance the installments, you will be able to eliminate fees that were included in the financing.
Order of payments
There are two ways to pay the installments and they work differently. The direct order happens when the consumer pays two or more installments with close dates, for example, the amounts corresponding to the months of May, June and July. In the reverse order, the last monthly installments are paid in a decreasing manner.
Anticipating financing payments brings several benefits to borrowers. The first advantage is to pay less money to meet the commitment, in addition to paying off the total debt in less time.
Financial planning can be modified to carry out other projects. In addition, the consumer has a good paying profile and can apply for new credits.
What resources can be used to pay off real estate financing?
When you receive 13th salary, bonus, PLR, FGTS or any type of extra income, check if it is worth investing this money or if it is better to repay your debt. Consider your profile as an investor and saver.
If you are a person who can control your spending and invest your money, it is advisable that you do not pay off the debt and direct these resources to another source of income, which will give you a higher return.
However, if you are a person who is struggling to pay your monthly bills, but you always think about buying new things and never manage to save money, it is more worthwhile to repay your financing.
However, it is important to remember that buying a property is also making an investment, because the property can be rented, generating fixed income, or sold, resulting in profit. So, if you have obtained a large financial sum, choose to pay your financing for a few simple reasons:
- when paying the payment, you will have the deed of the house, being able to sell it and obtain capital;
- defaulting on the financing puts you at risk of losing the property and the entire amount invested;
- the only investments whose yields are able to pay the value of the financing have medium or high risk.
Keeping an applied value, instead of paying off the financing, is only worthwhile when the application has good liquidity and security. Something similar to what was the Treasury Direct in recent years, before the government changed the interest rate and reduced the gains from this application.
Most of the time, the best financial option is to direct the resources available to pay the debt. Mainly, if the financed property is used as the investor’s residence.
Is it better to anticipate financing or invest?
It is advisable to analyze when it is worth investing the money or to advance the financing installments. Generally, it is more advantageous to pay the amount financed, however, in some cases, it may be that following the contract is better for the consumer. Observe the details below to make this definition!
Talk to the responsible professional at the agency or institution and check what the discount will be in case of anticipation of the amounts. Analyze the conditions that will be presented, as the payment will be made in advance. They must withdraw the excess amounts that would be paid overtime, otherwise, it makes no difference to the consumer.
Ask the institution about the percentage of interest applied in the contract and what would happen to them if they were written off for early repayment. If the fees are small and the discounts are lower, it is better to comply with the initial agreement and use the amounts to make a more profitable investment.
Paying off or renegotiating the value of a loan is an attractive possibility. However, there are even better alternatives for making the money pay off considerably. One of them is to solve urgent pending issues that cause obstacles in your budget. The other is to find an investment option that is more profitable and provides even greater profits.
The amount invested will pay off by increasing the amounts every month and you will have interesting amounts to request more favorable conditions. So, before using the money to anticipate the payment of your financing, evaluate the scenario. Think about financial strategies to get more savings and increase your profitability.
These are the main options to pay off real estate financing! As we saw in this article, paying the installments in advance is a possible task, as long as the buyer understands the differences between the current tables, does a research between the financial institutions and plans to make sure that their resources are directed towards the purchase of the property.