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When taking out a mortgage or a loan with property as collateral, you are not always familiar with all the acronyms and terms presented by bank managers. A common one is the CET, Total Effective Cost. But what does it mean?
What is Total Effective Cost – CET?
The CET is the amount charged by companies that provide credit or loan services. More specifically, it is the sum of all expenses and charges for financial transactions, the final amount.
And we are not just talking about the sum of interest rates, it also includes insurance, registrations, taxes and any other expenses related to operations.
Why CET was created
Since 2007, all financial institutions are required to report the Total Effective Cost of a financing or loan.
The objective is to create more transparency in transactions, as without the CET it is more difficult for the consumer to understand which offer is more advantageous for their pocket.
The law covers all financial institutions authorized by Banco do Brasil and guarantees fair competition for customers on a global level, as it facilitates the understanding of complex financial transactions.
The most common rates that make up the CET are:
- Fees
- Credit analysis fees
- Registration Opening Fee
- IOF – Tax on Financial Transactions
- General administrative fees
- General rates
- Insurance in general
- Taxes in general
How to calculate the CET
Although we have said that the CET is only the sum of the values, it is not such a simple operation, the value of this cost is made available in the form of an annual percentage (%).
Below we explain better, using numbers from the Constant Amortization System (SAC) :
| Bank 1 | Bank 2 | |
| Financing Amount | R$ 1,000,000.00 | R$ 1,000,000.00 |
| Entry Value | R$ 200,000.00 | R$ 200,000.00 |
| Term | 360 months | 360 months |
| Interest Rate (annual) | 6.99% | 7.12% |
| Total amount to pay | R$ 1,665,327.00 | R$ 1,615,327.00 |
The best way to know if you are getting a good deal to receive credit is to analyze the CET. Sometimes the lowest interest rates do not mean the best deal; fees and charges are largely responsible for increasing the Total Effective Cost.
Now, also considering the mandatory fees in a real estate loan, let’s compare again:
In other words, when compared, Bank 1 has the lowest interest rate, but when all costs are added up, it would be advantageous to close with Bank 2, as the CET is lower.
| Bank 1 | Bank 2 | |
| Financing Value | R$ 1,000,000.00 | R$ 1,000,000.00 |
| Entry Value | R$ 200,000.00 | R$ 200,000.00 |
| Term | 360 months | 360 months |
| Interest Rate (annual) | 6.99% | 7.12% |
| Registration fee | R$ 11,400.00 | R$ 9,000.00 |
| Insurance | R$ 69,400.00 | R$ 54,400.00 |
| Total amount with taxes | R$ 1,696,127.00 | R$ 1,693,423.00 |
| Annual CET | 7.71% | 7.68% |
The Total Effective Cost will always show the cost of financial operations more clearly and is the best parameter for you to compare!
Here at Agente Imóvel you can obtain your real estate financing with the lowest rates on the market:
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