CAT Reality Check: Your 12% Rate is Really 18%

In Mexico, signing a mortgage can be a game of smoke and mirrors. The bank offers you an "Ordinary Interest Rate" of 11.5% and it sounds reasonable.

But then you look at the CAT (Total Annual Cost) and see a terrifying 14.8% or more. Where does that difference come from?

The Problem: Mandatory "Accessories"

The bank doesn't just charge you interest. It charges you:

1. Life Insurance: Mandatory.
2. Damage Insurance: Mandatory.
3. Administration Fee: Sometimes monthly.

These "accessory" costs do not amortize capital. They are pure expense. And in many cases, they are calculated on the Outstanding Balance (what you owe).

The Agitation: The Silent Cost

If you pay $3,000 pesos a month in insurance and fees, that is equivalent to having a much higher interest rate.

The worst part is that, at the beginning of the loan, when you owe more money, insurance is more expensive. You are paying a very high rent just for the "right" to have the debt.

Many Mexicans focus on lowering the rate from 12% to 11.5%, when they could save more by looking for a bank with cheaper insurance or no monthly fees.

The Solution: Attack the Balance to Lower Insurance

Here is the secret: Since insurance is usually calculated on the debit balance, by making advance payments to capital, you not only lower interest, you also lower the cost of insurance.

It is a double effect. An extra payment of $50,000 pesos reduces your debt, reduces your future interest AND reduces the monthly insurance premium. The return on your money is brutal.

📱 The Simulation on Amorti

Don't rely only on the nominal rate.

1. In AmortiApp, configure your loan.
2. If your bank charges monthly insurance, mentally add them to your interest payment or use an "adjusted" interest rate (e.g., 14% instead of 12%) to see the real cost.
3. Go to "Extra Payments".
4. Simulate a capital contribution.

You will see that the time is reduced drastically. In Mexico, due to high rates, paying off a mortgage in 10 years instead of 20 is totally feasible with strategic contributions.

The CAT does not lie. Use it to your advantage.

Calculate Real Cost