How does mortgage repayment work? Financing is a popular choice among Brazilians to achieve their dreams of owning a home or buying a car, especially given the rising prices of real estate and vehicles. However, it is crucial to adopt debt repayment strategies carefully to avoid financial hardship in the future. In this article, we will provide essential information on how to properly repay your mortgage, helping you manage your budget and avoid debt.

Understanding Financing:

Before deciding to finance an asset, it is important to understand the steps involved in the process. The first step is to apply for a loan from a financial institution, where information such as payment history, current income and repayment capacity are considered during the credit analysis.

After the loan is approved, the financial institution will discuss the terms of the loan, including the interest rate, amount financed, repayment term, and additional charges. A contract is signed, detailing the obligations and rights of the parties involved.

It is crucial to include a payment schedule and penalties for late payments. Paying your payments on time reduces the risk of debt and gives you the option of paying off the loan early by making additional payments.

Remember that paying off your loan early reduces the impact of payments and interest on your budget. Therefore, it is essential to find ways to pay off your loan without hurting your finances.

Mortgage Loan Amortization:

Loan amortization involves gradually paying off your debt over time by breaking the total amount into smaller payments that include interest and other fees. Regular payments reduce your debt balance over time, highlighting the importance of paying your installments on time.

There are several amortization methods, such as the American system, the Constant Amortization System (SAC), the Price System, among others. Each method affects the value of the installments and interest over the life of the loan.

SAC vs. Price System:

The SAC and Price systems are used to calculate loans and payments over the financing period. In the SAC system, amortizations decrease over time, while in the Price System, installments remain constant.

Choosing between these methods depends on your current financial situation. Consider which method best suits your needs before deciding to finance your home or other asset.

Alternative Refund Methods:

In addition to traditional repayment methods, you can consider other approaches to paying off your mortgage loan. Making additional payments each quarter or semester can reduce the overall cost of your mortgage and give you more flexibility to manage your monthly expenses.

Use of FGTS for Amortization:

The Severance Pay Guarantee Fund (FGTS) can be used to pay off mortgage loans. However, there are requirements, such as being employed for at least three years, not having another active mortgage in the Housing Finance System (SFH) and being up to date with loan payments.

The FGTS can cover up to 80% of the loan, making it a valuable tool for reducing debt or paying it off completely.

Is it Worth Financing?

The decision to finance a property depends on your individual financial situation. In many cases, financing can result in much higher costs in the long run due to interest. If you have the ability to use your own money to purchase an asset, this will reduce the risk of debt.

Avoiding Financing:

For those who do not have a high income, inheritance or lottery luck, planning is essential to avoid financing. The consortium is an attractive option, characterized by fixed installments with practically zero interest. It offers security and the chance to obtain a letter of credit by lottery or bid.

Conclusion:

Financing can be a useful tool to help you achieve your goals of buying a home or car, but it’s crucial to understand the repayment process, choose the right payment method, and consider alternatives like a consortium. Assess your financial situation and goals before deciding to finance, ensuring you make the best choice for your needs and avoid unnecessary debt.

Read too: How Important It Is to Plan Your Finances