Total amortization – What is it, definition and concept | 2022

A total amortization is to pay off or liquidate the total principal and the interest generated from a contracted debt commitment. The total amortization can be given before the agreed time or fulfilling the established time.

That is, with a total amortization, the full payment of the contracted debt is made. This full cancellation can be made in advance or at the end of the established term.

If it is canceled within the agreed time, it means that the time it took to fulfill the debt commitment has ended. This would be the case of a five-year commitment and we reached the end of the fifth year, which is when the term ends. At this time, the person completes the full payment of the debt.

However, the amortization can be given in advance when the fulfillment of the debt is carried out before the established period of time. If we have contracted the debt for five years and decide to pay it in full in the third year. Without a doubt, a full early amortization is made.

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Naturally, for a person to decide to make an early repayment implies having important reasons or motives. It could be the case that a person for any situation had a certain level of liquidity. So, he estimates that if he repays the total debt early, he could save a considerable amount on the interest generated.

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Also, it could be the case that the debt contracted was on real estate and received an excellent purchase proposal. This causes the debt to be canceled in order to obtain title to the property and be able to sell it.

Recommendations to make a total amortization in the established time

When contracting a debt, especially when it is long-term, the following is recommended:

1. Be disciplined

To begin with, a person or organization that takes on debt must be very disciplined. Discipline for financial purposes means that the payments of the established quotas must be complied with in the agreed time.

This implies that we must avoid delays to cancel the probability that more will have to be paid or even that the guarantees that we have given to back the loan may be lost.

2. Have the ability to pay

Also, it is necessary to be clear that you must have sufficient payment capacity to be sure that we can meet the contracted debt commitment. Otherwise, we will have many inconveniences and problems.

3. At the end of the debt, demand a settlement or the property title

In addition, at the time the agreed time to pay the debt expires and the person has fulfilled their payment commitments, a settlement or property title must be obtained. That is, if it were financial capital debt, the settlement is obtained that releases the commitment. Whereas, if it were payment for movable or immovable property acquired, the property title must be required.

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Total amortization
Recommendations to make a total amortization in the established time

Recommendations to carry out an early total amortization

The most important recommendations for making a full early repayment are:

1. Focus on debts that have higher interest rates

First of all, it is advisable to carry out the total early repayment of debt when very high interest rates are applied. Otherwise, it is better to wait until the established term expires, because the debt registers a minimum financial cost.

2. Time is decisive

Above all, when it is decided to make a total early repayment of debt, time is decisive. This means that the faster it is done or in the first few years of long-term debt, the more interest you will avoid paying.

3. Take advantage of periods of liquidity to pay the total debt

Finally, it is convenient that when there is a period where there is sufficient liquidity, the debt is paid off in full. This will free you from commitment and allow you to continue making other important investment decisions.

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Total amortization
Recommendations to make an early total amortization

Conclusion on the total amortization of debt

In conclusion, it can be said that when an individual or a legal person manages to repay a debt in full, they obtain the following results:

  • Provides peace of mind to the debtor: The fact that a debt is canceled in full produces a feeling of greater peace of mind for the debtor. Since, it is released from the commitment to pay a monthly amount of money. This amount could be very high depending on the debt acquired.
  • Less money is returned: If it is decided to cancel the total debt in advance, it is clear that less money is returned. Because, it decreases the payment of accrued interest.
  • You can count on more liquidity: Of course, if you stop paying the established debt payment quota, you can count on greater availability of money. This allows for more purchasing or investment capacity. Because now there is more income or income.

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