The repayment plan of a loan in its entirety , with the periodic balance of the residual capital to be paid updated for each installment, is called amortization plan and is used both for loan applications and for real loans.
When you make a loan, the bank you refer to to make your request analyzes your income capacity – and that of the applicants who will eventually share the loan with you – is proposing to split the amount you need in a series of periodic installments, the amount of which will be partly used to pay off part of the capital advanced by the bank, and the remaining part will cover the accrued interest or the remuneration received by the bank to lend the money over time.
The careful reading of the amortization schedule of a debt situation allows to identify in detail the costs to be sustained over the course of the life of the debt ratio and, even more so because in this document all the details of the costs to be borne for the financing, you will have the possibility to identify the exact moment in which to pay off the loan early will still be convenient. It happens that, for the oldest loans, it could be inconvenient to proceed with the debt repayment, having already paid all or most of the interest on the debt.
This result can occur because our credit institutions, in the execution of the loan or loan application, adopt as a method of determining the plan, the depreciation to the French which provides for the payment of a monthly payment which, in the first part of The life of the debt will serve to extinguish a very large portion of the interest and that, with the continuation of the debt ratio, will begin to extinguish the capital initially anticipated by the bank. This method is preferred by banks which, in this way, can acquire the shares of interest due for the loans that they grant in advance of the duration of the entire relationship.
For you who have already started to pay your loan for some time keep an eye on the repayment schedule of residual installments is really essential, if you are thinking of getting rid of the periodic payment and pay it off in advance . In the event of early repayment, in fact, it is envisaged that the residual debt to be reimbursed to the bank will be reduced by interest not yet accrued when the amount is repaid; automatically, therefore, if you have signed a mortgage with a French depreciation and you have already paid many installments, it is possible that at the time of extinction you have to repay a capital that is slightly lower than what the bank has lent to you, by virtue of fact that all the time you have paid with your periodic installments, mainly interest in advance on the entire period. For this reason, early extinction may not agree in some cases.
Method of calculating the French depreciation plan
The characteristics of the French amortization plan provide that, against payment of a constant installment, the interest rate repaid is maximum at the beginning of the period and decreases throughout the life of the debt ratio; the portion of interest repaid from time to time with the installments is the result of multiplying the value of the agreed interest rate , for the residual debt resulting from the previous installment; the remaining part of the installment is deducted from the capital account, progressively reducing the amount to be repaid. In the case of floating-rate mortgages, the amount of the installment may change during the course of life , due to fluctuations in inter-bank exchange rates.