What the UVR is and how it affects you

The UVR (unidad de valor real, real value unit) is a unit of account whose value in pesos rises with inflation. It was created by Law 546 of 1999 for home loans, and today it is also used in UVR TES (inflation-linked government bonds) and some other bonds. Banco de la República calculates and publishes its daily value.

How it is calculated

The UVR grows every day so that, between the 16th of one month and the 15th of the next, it accumulates the change in the CPI (inflation) of the previous calendar month. So if prices rose 0.4% in a month, the UVR rises 0.4% over the following period, spread day by day.

Where t is the number of days since the 15th and d the number of days in that period. Today the UVR is worth $419.45.

What it means for a UVR mortgage

If your loan is in UVR, what you owe is expressed in units. Each month those units are worth more pesos if there was inflation. That is why, when inflation is high, the peso balance of a UVR loan can rise even though you are paying your installments: what you pay does not keep up with the increase in the UVR’s value. When inflation falls, the effect eases.

What it means for an investor

A UVR TES pays a “real” rate on a principal that grows with the UVR. If you buy a UVR TES at 6% and inflation is 5%, you earn roughly 6% above inflation. It protects you if inflation turns out higher than expected.

Pesos or UVR?

• If you think inflation will be higher than the market expects, the UVR suits you as an investor (and hurts you as a borrower).
• If you think it will be lower, the fixed rate in pesos usually wins.