Sometimes, when we receive the bank’s schedule, we do not look at how% EA rates are and the actual cost. Nor, when we go to the bank. Could it be that we miss something important, such as saving money?
Yes it’s correct. One way to save money is to be aware of the value of the fees. It might be a good time to lend or a good time to move that mortgage loan you pay each month to another bank. We go in parts:
Financial institutions charge “interest” for their work. The way to set the value is through the rates. Interest answers this question: how much is this money worth at this time?
What is% EA and the effective cost:
Mortgage loans handle two rates.
In Colombia, the average interest rate of banks at the end of March in the consumer portfolio was 19.78% annual cash and the credit card at the same cut was 31.24%. For VIS housing loans, the average rate is 12.97%.
The rate for this type of credit is presented separately depending on whether it is requested to acquire a house or to build it and if the credit is destined for a social interest housing (VIS) or a non-VIS one.
On the other hand, the credits in pesos correspond to those that are established with a fixed rate and that have a fixed fee during the credit time, while the credits in real value units (UVR) have variable fees, following the UVR certified by the Bank of the Republic.
We will also hear terms like:
- The Annual Effective Rate , that is, the value charged by the bank for lending money for 12 months.
- The Annual Effective Cost Rate . Includes expenses and costs incurred by the bank to carry out the business. It is equal to% EA + insurance + commissions. This figure is the most important when evaluating the cost of a loan.
- When negotiating a loan it is essential to know both values.
According to the law, financial institutions may charge commissions or postage for contracting debtor life insurance and all risks; and administer endorsed policies.
Why are the% EA rates and the annual effective rates modified?
The% EA rates and the effective cost move all the time . Many factors affect the cost of money. For example, supply and demand: if there is an abundance of money in the market, few people are interested in lending. Banks lower rates.
The economy, the dollar, oil, inflation or government measures and the Good Finance, among others, move rates up or down.
Likewise, the operating cost of financial institutions and the profit margin is reflected in the value of the fees. Therefore, when taking a loan, it is important to verify who offers the best rates.
Who modifies the rates?
The Good Finance sets the representative market rates. And each financial entity determines its own interest rates . It is a free and competitive market. If a bank has very high operating costs (local, personal, insurance, risks, etc.) its rates will be high.
What effects do rates have?
Rates go up and down by cycles. Governments are attentive to modify them to encourage the economy or to lower inflation . When rates are low, the credits and indebtedness of individuals and businesses increase. The economy moves. When rates rise, it is a good time to invest in financial papers as term deposits.
In your mortgage loan, the effect of the fees is reflected in the value of the monthly installment. A slight decrease will produce savings.
What is the best rate?
There are several modalities. For example, the variable or mixed rate is designed to be modified when rates rise or fall. Each month, the fee may be different. The fixed rate, on the contrary, is an agreement between the parties so that the rate is maintained from the beginning to the end. The quota one will be equal to the last.
The best rate will be the one that suits the needs of each client.
How to take advantage of the rates?
Good question. As rates change over time, it is important to review the mortgage loan businesses. For example, since last year the rate trend is down; Maybe your credit is at a slightly higher rate than the market handles today . In that case, a transfer may be convenient.