What is Amortization?

Amortization is the act of paying the principal value of a debt gradually. Each installment you pay has two parts: the amortization (which reduces the outstanding balance) and the interest (which is the cost of the loan).

Types of amortization

SAC Table (Constant Amortization System)

  • Amortization is fixed in all installments
  • Installments start larger and decrease
  • You pay less interest in total

Price Table

  • Installments are fixed from start to finish
  • At the beginning, the largest part of the installment is interest
  • You pay more interest in total than with SAC

Practical example

Financing of R$ 100,000 in 30 years at 10% per year:

  • SAC: first installment ~R$ 1,111, last ~R$ 282. Total paid: ~R$ 250,000
  • Price: all installments ~R$ 877. Total paid: ~R$ 316,000

Extraordinary amortization

You can make extra payments to reduce the outstanding balance faster. This saves thousands in interest. Whenever you have extra money, consider amortizing your debts.