2023-12-28 14:43:53
Financing a property involves several issues and raises many doubts among buyers. Among the most common questions in the financing process are how amortization works and what are the advantages of this practice in financial planning. To explain these issues, Babiton Espindola, CEO of da Urban Companyreal estate specialist in investments, comments on the subject.
Real estate financing is basically a loan from a financial institution to acquire the desired property. This amount is paid over a pre-determined period, usually in monthly installments, and includes not only the principal value of the property, but also interest and, possibly, other charges.
In this process, in simple terms, amortization is the gradual reduction of the outstanding balance of a loan. In the case of real estate financing, amortization can be used to alleviate the total amount owed on the financing and pay off the installments in less time.
According to Babiton Espindola: “Amortization of a real estate loan occurs monthly, being an integral part of the total amount of the installment paid. This practice helps the buyer achieve the dream settlement of the property more efficiently and get rid of debt sooner.”
Also according to Espindola, there are different types of real estate financing amortization, which may vary according to the type of contract with the financial institution. But the most common are Price Table and the Constant Amortization System (SAC).
The Price Table presents fixed installments, in which the portion allocated to amortization increases over time, while interest decreases. In this modality, at the beginning of financing, the installment is made up mainly of interest and, over time, the proportion is reversed and the installment is made up more of the amortization value than of interest.
While, with SAC, the portion allocated to amortization remains constant, but interest decreases. This implies decreasing benefits over time. In other words, the value of the first installment of financing will be greater than the second and so on.
“Real estate amortization provides benefits to the financial life of those who financed it, as it speeds up the financing repayment process. Furthermore, it ensures a reduction in interest rates, reducing the total cost of financing”, adds Espindola.
Considering all the benefits of the practice, according to the expert, the key to success in real estate amortization is the consistency of payments. If the buyer follows his payments in a balanced way, he will be able to expand his opportunities to pay less and, therefore, have better results in his financial planning.
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