Mortgage credit: What does grace period and capital deferment mean?

If you are looking to save on the monthly installments of your home loan, the financial intermediaries at Poupança no Minuto can help you with the available options. Grace period and capital deferment are two paths you can choose: find out how they work next.

Two short-term savings solutions for mortgage credit.

For those who need short-term savings with their home loan, there are several solutions that can help. Such as grace period and capital deferment. Both allow reducing the amount you pay for your monthly installment initially.  

What can bring advantages if you are renegotiating conditions because you are in a more financially sensitive situation. This is because these are two solutions that are not currently available for new financing. Only to be considered for customers with financial fragilities in the face of rising interest rates and difficulties in paying installments.

However, in the long run, these options also bring disadvantages. So, let's see how they work.  

Lack of capital means paying only interest initially.

The lack of capital means that during a grace period you only pay the interest associated with the mortgage credit in the monthly installment. In other words, during this period you do not pay the principal amount of the loan in debt.

As a rule, a mortgage payment consists of the amount owed plus associated interest. Therefore, during the capital grace period, you only have to pay the lower amount (interest).

The period can vary from bank to bank, ranging from six to 24 months . This means that during this time, the amount you pay for housing credit is lower. However, after the grace period, the monthly installment will be higher than in a housing credit that has not had a capital deferment.

Let's look at an example: in a 35-year loan, if you choose a capital grace period of 12 months, the actual debt amount will be settled in 34 years, as for one year only interest is paid. This means that, after the 12 months, the monthly installment will be higher.

Also note that the interest rate will also be higher, because during the period in which you will pay the loan, interest accrues on the total value. Therefore, the total cost of credit will be higher compared to a credit without capital grace period.

Deferred capital "pushes" part of the loan to the end.

Capital deferral is another option to alleviate monthly housing loan payments, which means "pushing" part of the loan to the end of the contract.

This means that part of the outstanding balance is left to be reimbursed in the final installment of the loan. Typically, this part corresponds to 30% of the total mortgage amount.

Illustrating, if the loan you requested from the bank was 200,000 euros with a capital deferment equivalent to 30%, it means that in the last installment of the credit you will pay 60,000 euros. This will naturally decrease the amount of the monthly installments of the credit for the remaining repayment term.

However, you must ensure that you actually have the deferred amount to settle in the last installment of the contract. As much as the value of the monthly installments decreases over the repayment term, the cost left for the last installment can be high and may even require taking out a new loan to settle it.

The portion of capital paid in each installment will be lower in this option: for example, in the case of a 200,000 euro loan, you only pay installments related to 140,000 euros of capital. But make sure you will be able to cover the remaining 60,000 euros at the end.

In addition, by amortizing less loan capital during the repayment term, the interest value will be higher since it is based on the total capital (including the final installment).

Need help moving forward with any of these processes? Contact Poupança no Minuto for free, fast, and personalized service. Credit intermediaries handle your process promptly to renegotiate conditions and start saving with your housing credit as soon as possible.