What is the French Amortization System?Lenders
Before explaining what the French depreciation system consists of , let’s see what a depreciation system is.
A depreciation system determines how you will pay your mortgage payments. Normally, the most used system is French , but there is another model, German.
With the French amortization system, you will pay the same money every month until you finish your mortgage. This system is characterized by having constant quotas , a balance in the quotas that will only vary due to the evolution of interest rates. Having the constant installments implies that at the beginning of the installments you will pay more interest than at the end, that is, if you have to pay a fee of € 1,500, in the first payment you make, of those € 1,500, € 1,000 will be interest and € 500 would correspond to the amortization of capital. In the last installment it will be the other way around, less money will be allocated to interest and the rest to the amortization of capital.
For this reason, the French depreciation system is also known as a progressive system, since as time goes by, the money used to amortize interest goes down, while the money used to amortize the capital contribution goes up.
WHAT IS THE FRENCH AMORTIZATION SYSTEM FORMULA?
The formula French depreciation system is as follows:
- To know the annual fee you must apply the following formula:
(1+ i ) i
C = V _______
(1+ i ) – 1
C = fee to pay
V = amount of the mortgage loan
i = interest rate
n = number of installments
- To know the interest of each quota the following formula is applied:
I (p-1, p) = i . V (p-1)
I (p-1, p) = interest rate for the period
i = interest rate
V (p-1) = capital of the mortgage loan pending amortization
Once we know the formula French depreciation system , we must also bear in mind that, when interest rates rise, we must increase the loan’s payment or the duration of the loan, since as we have said before, the French amortization system it is a system of amortization of constant installments.