cap rate vs interest rate

Understand how the Selic rate influences real estate financing

Finance Property Realestate

Have you ever heard of the Selic rate in your life, but you’re not sure what it means or its influence on the economy, especially when it comes to mortgage financing? Understanding this rate is important, especially if you are looking for your dream apartment.

We are experiencing a scenario of falling Selic. Is this good? Check out in this post what you need to know before closing the deal!

What is Selic?

The acronym Selic stands for Special System of Settlement and Custody. The name is difficult, but it is nothing more than a basic interest rate that banks, card companies and financial institutions use to calculate the interest that will be charged on different types of credit.

Every month, the Central Bank’s Monetary Policy Committee (Copom) decides whether there will be a reduction or an increase in this rate. It is one of the tools to try to control inflation and reach the target or try to stimulate consumption.

When inflation rises, the Selic rate usually increases. This is because, with high interest, people tend to buy less. This forces the market to lower prices and curb inflation. On the other hand, when the Selic rate drops, it boosts consumption and heats up the economy.

It may seem like a very distant conversation from our daily lives, but it’s not true. It is this index that regulates the rates of savings, credit cards, installment plans, financing, among other modalities that depend on this average to carry out their calculations. So, having this understanding is critical to deciding when to invest in something of such high value, such as real estate.

What is the Selic rate today?

In May 2020, the Selic rate reached its lowest level in history, going from 3.75% to 3%. This is the seventh consecutive reduction in the current downward cycle started in July last year.

How does it affect real estate financing?

You already understand that mortgages and the base interest rate go hand in hand. In practice, with a lower Selic, other rates tend to fall as well. Credit is cheaper.

A tip is to keep an eye on the downward movement, which has continued since the end of 2019. This could be an opportunity to purchase the desired apartment of your own.

Some banks have already announced the transfer of the Selic cut in real estate financing rates. You can find loans with variations between 6.5% and 7.3% per annum, which is considered very attractive.

Another point is the increased power of choice with cheaper credit. Once you have a better payment condition, you can evaluate your choice of apartment from a different perspective. Maybe that property that wasn’t in your budget now is.

Oh, and anyone who has already taken out a real estate loan at the previous rate, which was higher, can take advantage of it too. It is possible to renegotiate or request portability to another bank that offers some type of benefit.

Selic rate and savings

For convenience and security, many people do not give up saving, even with other more profitable options. It turns out that, with the lower Selic, fixed income investments yield less, like savings. In the current scenario, annual net profitability dropped from 2.63% to 2.10%.

So, if you’ve been saving money to get a down payment on your apartment, maybe this is a good opportunity to assess the real estate market and its potential for appreciation.