What is the amortization?
The definition of amortization of a mortgage is a financial process by which a debt is gradually extinguished through periodic payments, which may be the same or different.” For ordinary mortals, amortize a mortgage, it is the act of paying, month by month, the debt contracted with the bank for the purchase of a property.
What are the Types of Amortization Exist?
Although the vast majority of citizens will only know in their lives how to amortize a real estate mortgage just like Miami Beach Real Estate, there are different types of amortization, financial and economic.
The most popular, financial amortization is to gradually repay the incurred debt. Some interest is added to this amortization so that the fees we pay to amortize a house mortgage comprise two concepts: principal and interest.
When we talk about amortizing a mortgage, we refer to the principal. To determine which part of the principal and interest is settled each month, different amortization systems are used. It must be reflected in the signature of the mortgage which will be used in each case.
Amortization Rate, American System
In countries like Spain, it is practically unknown and it is the simplest of the three types of amortization. During the life of the loan, the corresponding interest is paid, except in the last installment, in which the total of the principal is settled. It is customary in the United States to open an account in which amounts are entered monthly to pay this last installment. In a way, with the American system of amortizing a mortgage, he would have a double obligation, pay interest to the financial institution and make regular deposits destined to the payment of the principal.
The only a priori advantage of this system is that the account created for the income of these advances of the final payment generates interest that can help alleviate the economic burden and that, at the same time, serve as an incentive for the savings of individuals, since banks ensure regular income for a very long period of time.
Mortgage Amortization Insurance
But the tricks of financial institutions do not end there. As a result of the rising cost of housing, in many cases, mortgages are signed more than 50 years. It is relatively common to see retirees who no longer work, but still pay mortgages, which in case of death, inherit their children or relatives.
It is true that no one obliges us to inherit, but to avoid that the bank has to assume the part of the debt that remains to be covered in case the heir does not want the home (with its charges and capital gains in case of a sale), many Banks offer life insurance.
It is just a way of guaranteeing that in case of death both the interest and the principal of the debt are settled, and everyone is happy. Or almost, because we do not forget that depending on which autonomous community one resides in, the inheritance tax will be more or less burdensome, for example, 300 Collins Condos and 321 Ocean Condos are less burdensome.
It is very common to find cases of heirs who after paying the rest of the pending amortization of a mortgage and inheritance tax, barely get a few thousand euros for a house that was mortgaged for years. And in the worst case, they have been forced to sell the property because of the low profitability of the operation.
To avoid the problems that accompany the inheritance of a property with a mortgage, it is advisable to take out an amortization insurance, which guarantees that in the event of the death of the owner the mortgage will be extinguished and the heirs free of charge to be able to take ownership of the property.