In this article, learn all about the Annual Total Cost (CAT) and how financial institutions determine their values
Have you ever heard the acronym CAT? It is of paramount importance for those who decide on real estate financing, as it dictates payment values throughout the year. It is necessary to be even more attentive to who will pay the installments for decades.
We know how confusing acronyms and other terms surrounding real estate financing can be. However, your knowledge is indispensable. So, keep reading until the end to know, once and for all, what CAT is and why it is important.
The Annual Total Cost (CAT) is, according to Banco de México, a standardized measure of the cost of financing, expressed in annual percentage terms — that is, it reflects the total value of a loan, as it incorporates all associated costs and expenses with the loan.
Therefore, it is very important to compare this indicator between the different products to be ordered, especially mortgage loans, which involve large sums of money. For this case, the CAT also includes commissions, interest, insurance premiums, amortizations, and other expenses for banking services.
Today there are several mortgage credit comparators, which, based on data such as monthly income, type of housing required, age, and others, provide the options that fit the profile. In addition, they have the facility to compare different indicators, be it CAT, interest rate, monthly payment, or total payment.
While it was only possible to obtain this information by going directly to the bank before, these types of tools have facilitated decision-making, so in a matter of minutes, you will have a list of credits that fit your financial profile.
Banks are required by law to report the CAT of each loan. It is one of the most important indicators to take into account, although it is not the only one, since it is also necessary to compare factors like the interest rate, monthly fees, opening fees, administration fees, and fines for advance payments.
It is important to compare the benefits and obligations that each institution offers. While it’s common to start with the loan amount, terms, or interest rates, there’s one indicator you should not ignore: Total Annual Cost (CAT).
According to the Bank of Mexico (Banxico), the CAT represents a standardized measure of the cost of financing, expressed in percentage and annual terms. This incorporates all the expenses inherent in the loan that are required of the borrower.
Therefore, it is a percentage that indicates the total cost of credit, including interest, start-up expenses, insurance, and so on. The goal is to be able to compare mortgage loans and other financial products. Thus, the lower the CAT, the better the credit.
Finding the best mortgage credit requires accurate and informed research. The ideal is to go through steps, that is, before investigating the financial institutions that offer this feature, it is important to be clear on three points.
1. Your short-term and long-term economic situation, to find out if you can finance a mortgage for more than 10 years.
2. The price of the property you are interested in, to determine if access is feasible — recommended but not necessary to start the mortgage loan application process.
3. The amount you have for start-up expenses, as the mortgage loan only covers 80 or 90% of the property’s value and there are other expenses you will have to incur at the start.
Currently, there are many financial entities that offer mortgage loans, such as banks, Sofomes (Multiple Purpose Financial Companies), government institutions, and savings and credit unions. Each with different mortgage loans to cover different needs.