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In my previous post I explained that the APR does not reflect the expense that a person will assume for contracting a mortgage , but rather the profit that the financial institution will obtain thanks to said contract. And the difference between the two (benefit/cost) is very large… for one reason: the constant mobility of the investor's (the bank's) money. Today I propose to restart the explanation and approach it from the opposite point of view: “ money that does not move, loses value .” This means that, if you keep a €50 bill in a drawer, when you take it out in a year you will be able to buy fewer things than today due to the depreciation of money.
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Examples of how the bank calculates the depreciation of money
The example consists of a loan of €10,000 for 1 year with an interest Romania Mobile Number List rate of 4,800% and an APR of 4.907% . This contract had a final cost of €261.90 .
How much does the bank estimate the depreciation of money will be each year? Answer: 4.800% per year = 0.40% per month.
depreciation of money
This table shows the different APR percentages explained in each example and the breakdown of their fees. ( Sambla )
Recommended reading: Mortgage Simulator: the best mortgage in 3 easy steps
EXAMPLE 1 (initial example)
The loan fee is €855.16. The bank estimates that the depreciation of money is 4.80% (0.40% monthly) . This implies that, those €855.16: the 1st month are worth 0.40% less compared to the day on which the loan is paid (€851.75); In the 2nd month they are worth 0.40% less compared to the previous month (€848.36)… and so on until the end. We verify that the sum of all these “devalued” monthly installments gives a result of €10,000 (value of the investment at time 0).
In financial mathematics: these €10,000 are known as the Present Value of a Post-Payable Income of €855.16 at 4.80%.
EXAMPLE 2 (initial example, but with opening commission 5%)
Let's imagine that the bank offers us identical conditions as the previous ones , but charges us a 5% opening fee when contracting the loan (month 0). Do you still estimate that the depreciation of money is 4.80% per year (0.40% per month)? Answer: No.
The introduction of this added expense of an initial €500 modifies the depreciation expectation to 14.4876%.
In other words: the bank obtains the same APR by making a loan at 4.80% with a 5% opening as a loan at 14.4876% without expenses (both have APR 15.4894%). And is the final cost the same? Answer: No (the 2nd case is €40.10 more expensive).
EXAMPLE 3 (initial example, but with €500 insurance)
And what would happen if, instead of paying a 5% opening fee, the bank required me to take out insurance of € 500 ? It would happen that the cost for us is identical to that of example 2 (€761.90). However, the APR would be 4.9070% (same as example 1).
Why's that? Well, because the APR is a profitability indicator that only computes the profit obtained directly from the investment itself (the loan), and does not consider in its calculation the additional income (due to links) that the “investor” obtains on behalf of a third party (in this case, an insurance company).
Recommended reading: Bonus Mixed Mortgage or Santander Fixed Mortgage?
In summary: Choosing a mortgage loan is a decision that seems complicated for anyone and deciding based on the APR can lead us to make a serious mistake. So the objective that we must set, from now on, is to obtain the financing that causes us the lowest possible cost taking into account all the factors.
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发表于 2024-3-12 16:48:55
