In this note we tell you everything you have to take into account about mortgage loans, both pro and contra.
As we mentioned in previous articles, mortgage loans expanded with great force in recent months. In spite of its good acceptance, some voices emerged that warn about the hidden points of this type of loans.
One of the peculiarities is the type of indexation, given that we do not know how much we will end up paying in dollars.
How is the debt of credits going down over the years?
For those who do not know, the quotas are updated by the Consumer Price Index (CPI). They can not increase more than 10% with respect to the average salary. The debt we take is not in pesos or dollars but in . A is equivalent to one thousandth of the cost of the square meter of construction.
1 m2 = 1,000 .
As credits are granted in the long term and the value of the quota is adjusted according to the CPI, one of the doubts that arises is related to the impact of inflation on the installments.
Some conclusions of economists about the future of this type of indexed credits are:
- The value of the will not necessarily evolve in line with the cost of the square meter.
- To repeat what happened in recent months, more and more will be needed to pay for the same area.
- The index may evolve unevenly than the dollar, the currency used to value properties in our country.
- We can know the balance in pesos but not the amount of dollars that the credit will finally use.
- When 20 years have elapsed (in the case of a credit of 30), 50% of the assumed commitment will be debited in .
What specialists always clarify is that we must remember that we do not take a loan in pesos or dollars, but in indexed units.
1,000 are still 1 m2?
Another question that arises is whether a is still equivalent to one thousandth of the cost of one square meter of construction. The answer is no. Why? Simply because its value is adjusted according to the Reference Stabilization Coefficient. The CER is prepared by the Central Bank based on the CPI. But here lies the difference: the value of the square meter is defined according to the Construction Cost Index.
The mechanism that does contemplate this type of adjustment is the Housing Unit (UVI), but it is of little acceptance in the market.
Since the implementation of the , a price of $ 14,053 was established. The specialists inform that currently a 6% more is needed to buy the same square meter.
About the interest rate
To understand how debt evolves we must consider the interest rate and its relation to the number of installments.
It is important to know that:
- The amount of each quota remains constant in throughout the entire period. What varies is the value of each , adjusted to the CPI.
- In each one of them, a large part is used to pay interest. The rest to cancel the capital.
- As debt decreases, interest also decreases, since they are calculated on the balance.
- As the quota remains constant, the part destined to cancel the capital increases.
That is to say that what we pay monthly (for several years) is almost all interest. This causes that the amount owed does not fall significantly.
Although for many Argentines the difference in “real” rate does not have a significant weight, there are marked differences.
For a loan of 50,000 (approximately $ 1,000,000) for 30 years, with three levels of rates above inflation ( 3.5%, 5% and 7%), the following results are shown:
1.- Real rate of 3.5%
The policyholder will have to pay an initial fee of $ 224: of that total, 65% will be used for interest and the rest (35%) for capital. Upon expiration, it will have returned almost 81,000 . That is, 62% more than what was received.
2.- Real rate of 5%
The quota climbs to $ 268 and the interest weight will represent almost 78%, which will result in a lower amortization. In this case, 97,000 will be finally returned , practically double.
3.- Real rate of 7%
The interest on the first payment will be around 88%. In this case, at the end of the cancellation, 120,000 will have been returned.
If we consider the 100% gap between the minimum and maximum rate (3.5% and 7%), it is clear that the increase in the quota is only 48%, that is, the same percentage in which the amount will be increased. of to be returned against the original amount.
The interest rate is very important when considering how to cancel the loan. This is a consequence of the lower weight that the portion destined to the amortization of the capital has in each installment. The higher the interest rate, the slower the repayment of the amount owed.
From this analysis of credits we can draw the following conclusions:
- After the first 10 years of the mortgage loan we will have paid just 15% of the amount owed in , if the real rate is 7%. If the real interest rate is 5%, the percentage paid will rise to 19%, and for 3.5% it will increase to 22%.
- After two thirds of the loan, the debt will oscillate between almost 45 and 60%, for an interest of 3.5% or 7% respectively.
- This type of credits is not recommended for those seeking to make early cancellations.
- The debt will be taken in , not in pesos or dollars.
- The fees to be collected will be constant in . What does increase the amount to be paid is the adjustment for inflation.
- With each installment we will be canceling a much lower amount than what is being paid. This is because the majority of that amount represents interest.
For those who take 30-year mortgage loans can cancel it in a timely manner, governments that succeed in the future must reduce inflation and the economy must be orderly and predictable. In addition, the dollar should not generate large changes, given that the system is disconnected from the exchange rate, although the dollar remains the benchmark of the real estate market.