The repayment of a loan
The period of time in which we must meet the payment of our mortgage is one of the aspects that we look at most when asking for it. Currently, the longer the better, as each instalment will be less. But let us not forget that we are paying more interest.
At 30, 35 and even 40 years... These are the mortgages most requested at present. Progressive increases in home prices have converted these repayment terms into the most normal, with loans at 20 and 25 years being reserved for the more fortunate. However, we should go deeper into the most common repayment systems.
The interest-only period
The market obliges mortgages to be taken out at longer and longer terms to make the instalments lower. However, the interest that we have to pay will be more. However, the bank establishes an interest-only period; That is, a period of time - sometimes up to 5 years - in which the borrower only pays the interest of the loan.
Repayment systems
Systems of repayment are nothing more than mathematical formulas used to calculate the instalment that the borrower of a mortgage loan must pay.
The most common systems are:
- The French model: is the most commonly used system. It consists of paying a fixed monthly instalment composed of capital and interest. In this repayment model, the majority of the instalment goes in the first years to payment of interest, leaving a small fraction for payment of capital.
- Fixed capital : this system is distinguished by its instalments being variable from one month to another. This is due largely to the fact that the instalment is used to pay the capital, which will go down month by month. The rest goes to the payment of interest, which will also go down as the capital is paid, and this constitutes the variable part of the instalment.
- Growing instalments: as in the above case, the monthly instalment goes to payment of capital and interest. However, in this case both parts are variable - in the previous model the capital was fixed. The instalment that must be paid will increase gradually in accordance with a percentage fixed previously.