A Multiple Contracts Version of the SACRE

Abstract

In 1996, the Caixa Econômica Federal (CEF), which is the main institution for housing financing in Brazil, introduced a debt amortization scheme named “Sistema de Amortizações Reais Crescentes” – SACRE (system of increasing amortizations in real terms). In its original version, this very peculiar amortization system is not financially consistent. Namely, even if all contractual payments are dutifully made, a residual debt remains, which must be paid in full by the borrower, usually one month after the end of the term of the contract.
Given that de Faro and Lachtermacher (2022) proposed a financially consistent variant of the SACRE, the purpose of this paper is to formulate a multiple contracts version of this system. Similar to cases of the adoption of either the constant payments scheme or the constant amortization scheme of debt financing, which were considered in De-Losso et al (2013) and in de Faro (2022), it will be shown that the financial institution granting the loan, depending on its cost of capital, may derive substantial income tax reductions in terms of present values.