Chosen dream property, signed financing contract and fully furnished home. Now it’s time to start a new stage: pay the financing installments!
If for many people this step can take years or decades, for others, the financing can be paid off in much less time than expected. After all, you don’t have to stick to the deadline set in the contract!
In fact, the discharge of real estate financing in less time – also known by the term “amortization”, is a very common practice and even recommended in many cases.
Keep reading this article and learn a little more about what amortization of real estate financing is and find out if it is advantageous for you!
What is a real estate financing amortization?
The simple fact of making the payment of the installments of a real estate financing is, in itself, the amortization. However, the term is more used when the property owner wants to anticipate the value of the installments in order to reduce the financing time and avoid interest.
In practice, it works like this:
When you take out a loan, all payment terms are determined in the contract, such as the number of installments, number of installments, payment terms and much more.
Of the total amount of each installment, a part is destined to the contracted interest and another part is for the amortization of the outstanding balance. The interest is linked to the number of installments, that is, the more installments you have, the more interest you will pay.
Thus, when amortizing the financing, you will advance the payment of the installments that would be paid in the future. This results in a decrease in the accumulated amount of interest, the total amount of debt and the time it would take to fully pay off the loan.
Why is it interesting to pay off real estate financing before the deadline?
Maybe you’re wondering: when is the amortization of real estate financing worth it?
Financing amortization is worthwhile whenever you have extra money and can use it for that. Did you receive your 13th salary, the value of an inheritance, or did you simply manage to save some money? So, choose to apply it to the financing discharge!
After all, it is very worthwhile to settle the financing in advance, since it is possible to obtain a kind of discount on the original debt. The less time you can pay off the loan, the less you will pay in interest.
It makes sense to pay off the financing also when looking for financial freedom. By paying off the debt, you will no longer have to worry about the monthly installment payments and you will be able to use the money in other areas.
Besides that, repaying financing is a smart long-term investment strategy. After all, future debt is eliminated and you can benefit from possible high financial returns.
It’s worth mentioning that repaying the financing in less time is a very personal decision, varying according to the financial possibilities of each person.
How to pay off the financing in less time?
The first step to pay off financing ahead of time is to seek out the creditor financial institution and communicate your decision. All financial institutions are obliged to accept requests for payment of outstanding debts.
From there, you request all information and payment options for the outstanding amount, such as the amount of the early payment discount.
In the case of full settlement of the debt, the institution may provide a bank slip or make a bank transfer option.
If you prefer to just settle the loan gradually, just making the installments in advance, it’s possible to use the amortization system used in your financing. Understand more about it below.
Types of financing amortization
When you buy your new property with the help of real estate financing, there is a calculation that makes up the value of the installments to be paid.
The value of each of them, as we said above, is composed of a part of the interest and another part of the value of the debt itself. Keep this information safe!
In Brazil, there are different ways to amortize your financing.
In the Constant Amortization System, one of the most common for real estate financing, the value of the installments is readjusted and gradually reduces over time, as payments are made. This happens because there is a decrease in interest in the composition of the value of the installments.
In the Price System, the value of the financing installments remains the same until the settlement of the contract. In this case, most of the installment amount is made up of interest that decreases over time, while the proportion of debt amortization increases.
Amortize the outstanding balance or installments?
It is possible to choose to amortize both the outstanding balance and the debt amount in installments.
By amortizing the outstanding balance, it is possible to reduce the term of the financing, maintaining the monthly values.
However, if you choose to pay off the debt amount in installments, what changes is that the buyer will pay less monthly, gaining a more comfortable family budget. Here, the financing time remains the same.
In practice, no modality is better than the other. The important thing is to choose the one that best suits your financial reality.
Is it possible to use Length of Service Guarantee Fund (LSGF) to pay off real estate financing?
Yes, it’s possible to use the amount available in the LSGF to pay off the mortgage.
However, it’s important to know that the LSGF amount can only cover up to 80% of the outstanding balance or up to 12 financing installments.
There’s no limit on how many times you can use this feature, but you must have at least a 2-year break to use it again.
After paying off the financing, what do you need to do?
Debt paid? Calm down, because you aren’t officially the owner of the property!
After paying off the real estate financing, it’s necessary to register the discharge in the Real Estate Registry Office where the respective property is registered.
To do this, you must ask the financial institution in which you financed the term of discharge of the debt signed by the institution. They have 30 days from the last payment to make this document available to the owner.
With the term in hand, take it to the registry office and remove the fiduciary alienation that was registered in the registration of the property.
It’s important to note that this process of registering the discharge at the notary requires the payment of new fees and the amounts may vary according to the state.
Once this is done, ask for the updated property registration certificate and keep it with you! Now yes, you are officially the owner of the property. Congratulations!
Doubts with the bureaucracy?
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