What is the mortgage amortization? How are technical amortization interests calculated? Between the stipulation of the mortgage loan contract to finance the purchase of a property and the payment of the first installment, consisting of principal and interest, a loan pre-amortization period begins, during which the borrower pays the bank only the interest rate.
Let’s find out in this guide what is the technical pre-amortization and what are the costs / benefits.
Technical mortgage pre-amortization; what is that?
There is talk of technical pre – amortization , ie of the time lapse between the signing of the mortgage loan contract and the first installment, when the interest paid by the borrower is limited and proportional to the number of days.
Closer are the stipulation of the loan agreement and the first expiry of the installment, the lower the interest that must be paid at the end of the amortization plan.
Unlike the ISC ( Synthetic Cost Index ), the pre-amortization interest is not necessarily reported in the illustrative sheets, for this reason it is good advice to ask the Credit Consultant for explanations.
Pre-amortization interest: how is it calculated?
To better understand how the technical pre-amortization works, it is good to make an example of calculation .
The pre-amortization interest is calculated with this equation:
[(Number of Days) x (Capital) x (Annual Rate in%)] / 365
The number of days is equal to the calendar days between the stipulation of the mortgage loan contract and the payment of the first installment.
The formula applies the mortgage loan rate and the capital is the sum requested.
Pre-amortization interest: when to pay them?
Usually the pre-amortization interest is charged on the first installment , but if the pre-amortization interest rate is exorbitant, it can be “spread” on all the loan installments to make the outlay more homogeneous.