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Mortgage loans: What are the hidden costs you should be aware of before taking out a loan? - La Nacion Propiedades
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Créditos hipotecarios: ¿cuáles son los costos ocultos que hay que conocer antes de tomar el préstamo?
Qué se debe tener en cuenta para lograr identificar la totalidad de los costos de un crédito antes de tomarlo
www.lanacion.com.ar
July 20, 2024
What should be taken into account to identify all the costs of a loan before taking it out?
The costs that mortgage loans include that are usually not known until the last minute and must be taken into account
The return of UVA mortgage loans in Argentina has revived the dream of owning one's own home. 21 banks have already launched their UVA credit lines ; a unit of measurement created by the Central Bank of the Argentine Republic (BCRA) that updates its value daily according to the evolution of the Reference Stabilization Coefficient, which in turn is updated by the value of the Consumer Price Index (inflation).
Before taking out a loan and getting into debt for 20 or 30 years, it is essential to identify all the hidden costs that come with taking out the loan. On the one hand, there are the costs known as: the value of the installment, the rate , different types of mandatory insurance and the advance payment of between 20% and 30% of the value of the property (depending on the bank that grants the line) to access the line.
On the other hand, there are costs that entities include that can end up making the commitment more expensive without the person perceiving it at first . “For example, when you ask for a personal loan with a rate of 40% , you think it is cheap and say: 'I can use that money for a fixed term and they will give me 50%'. And it is not like that, because later they charge you a series of expenses, which in the long run increase the cost,” a source from the financial sector explained to LA NACION who prefers to remain anonymous.
Mortgage loans have costs that can make them more expensive than you expect.
Therefore, when analyzing which loan to take, it is key to look at the total financial cost (CFT) . This is a mandatory variable imposed by the BCRA as a regulatory entity and includes all the charges that the operation has - from insurance to the monthly payments themselves.
“If you are going to go to such an entity, ask about the fees and always compare the total financial cost ,” advised the specialist. If you are comparing entity A or B, one of the things you should ask is the total financial cost. The rate is explicit but what is not are the costs associated with the operation . So, this puts it in black and white and allows you to compare all the expenses associated with the operation of the different banking entities (on equal terms).
However, when it comes to understanding what is included in the total financial cost, it must be taken into account that banks are required to require certain insurance policies such as fire and life insurance , which, despite having relatively low costs, must be maintained throughout the duration of the loan, which ends up turning this item into a hidden cost. Consequently, they end up being an important value that is included in the total financial cost ( CFT).
Ways to detect the total financial cost
Does a lower rate not necessarily mean cheaper credit?
Not necessarily, you have to look at the CFT (insurance and other expenses). This means that , given equal conditions - that is, a line with the same rates - what determines the best option is the total financial cost .Another key point is the conditions for clients and non-clients: almost all banks offer a preferential rate to their clients. “In addition, there is a ratio of installments to income, which has been made more flexible, because now it is allowed to put co-signers, which give the option of increasing that aspect -which in general should represent between 20% and 25% of the salary-. In any case, the debtor is one and the one who makes the payment is the credit holder. The bank's guarantee is not the person, it is the property ”, clarified the consulted source.
As for the process, the specialist explains that once the line is approved, the bank makes a pre-agreement ; and with that pre-agreement, the potential buyer goes out to look for the property. Once he finds the property, he gives the deposit and presents the data to the bank. At this point, a new key variable opens up that can make the loan more expensive: the appraisal of the property , which in the case of being acquired with a mortgage must be done by a bank appraiser.
The first thing to ask before taking out the line of credit
What about the appraisal made by the bank? Can it influence the total cost of a transaction? It is not correct, but the practice, customs and habits of Argentina mean that when a property is sold, the parties agree on a value of the deed lower than the market value, between 20% and 30%, with the aim of reducing the costs associated with the deed .
However, when the transaction is made through a bank loan, the notary and the appraiser are assigned by the entity that lends the money and needs to be protected in case the beneficiary cannot meet the commitment. For this reason, the appraisal usually has a value above the market price, which will end up impacting the tax costs and those of the deed.
The “B side” of pre-cancellation
Prepayment is when the borrower decides to pay installments in advance . And at this point it is also key to find out what the fees are: not all banks charge the same , but, in general, it is usually around 3% of the amount chosen to prepay. Although currently, there are banks that have stated that they do not charge that percentage of the prepayment, while others have not yet reported it.Before understanding this, it is important to know that when you prepay , you have to keep in mind that you are not going to pay “a number of pesos”, you are going to pay “a number of UVAs” . Therefore, that UVA has a capital component and an interest component . In the French system, you start by paying more interest and less capital, but it changes throughout the credit. So, if you prepay in the first years, it will be the interest that you are paying. That is, the capital debt does not decrease.
Possible investments to pay off mortgage payments.
So, taking into account that the UVA comprises a part of capital and another of interest, there are costs that can be added here. “ What you have to look out for is that the bank where you request the loan, in the event of a prepayment, takes your money and uses it to pay off the capital and not the interest,” said another source in the sector.
That is to say, the moment in which the loan is decided to prepay is fundamental. If it is in the first years, the bank reduces the interest, on the other hand, if it is done at the end of the loan, what is reduced is the capital. What does this mean? It is advisable to reduce in the second part because the capital will have lower costs.
"Furthermore, if the bank reduces the capital and maintains the term, you can lower the value of the installments or reduce the number of installments while maintaining the value of the installment in UVAs," said the source consulted.
In conclusion, the consulted source explained that “ the important thing is that the capital is reduced and that UVAs of interest are not prepaid. In other words, the key is to always ask and find out before taking out the loan and not assume that they are all the same,” he concluded.
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