Financing your Portuguese home: the ABC of Home Loans in Portugal

In this article we look at some of the key factors involved in financing a property purchase in Portugal.
If you are thinking about moving to Portugal and buying a property there, you should be aware that there are some specific conditions that you should meet to be able to get a home loan by a Portuguese bank.

 
ComparaJá.pt, a comparison website that freely allows you to compare the best home loans to buy your Property in Portugal, explains all that you need to know about Portuguese home loans.

 

1. Tools that you can use to compare banks

There are more than 20 banks in Portugal that have different mortgage loan offers and we advise you to compare them all, as their offers vary according to the client’s profile. While it is impossible to go to every bank agency and ask for an individual proposal, there are certain websites in Portugal that that can help you with the process.

ComparaJá.pt does that for you. It is the leading comparison platform in Portugal and it compares all the Portuguese banks offers when it comes to mortgage loans. You just have to access this page and fill your profile in the bottom of the page. After that, one of the specialized consultants will analyze your profile and aggregate the offers that suit you best.

After that, the consultant will contact you to show the different offers and help you in choosing the best one. But you have to keep in mind some essential aspects of getting a home loan in Portugal, which leads us to point 2.

 

2. Documents needed to get a loan in a Portuguese bank

If you are a foreigner, there are some documents that you need to have in order to apply for a loan in Portugal. Without those, it’s likely that the bank will decline your application. Among these are:

  • ID Card or Citizen Card
  • Duplicates of the last three payroll documents
  • Floor plan of the apartment or house in Portugal that you intend to buy
  • Documents about other incoming sources (if any)
  • Credit Report
  • Last Income Tax Return and its Notice of Settlement
  • Plan of the building
  • Bank Statements (in Portugal and Overseas)
  • Employment confirmation letter

 

3. How to translate a Portuguese Home Loans contract

In order to properly analyze a Portuguese Home Loans contract there are certain terms that you must be aware of. As will usually be in Portuguese we will briefly explain them so that you may know what they mean and how to deal with them:

TAEG: in English this is commonly known as Effective Annual Rate (EAR). It´s advisable to compare home loans having this interest rate as the main factor, as it includes several costs such as taxes, fees and interests.

MTIC: in Portuguese it is called “Montante Total Imputado ao Consumidor” (MTIC). It represents the total amount that you will have to pay for the credit (it already includes the capital as well as the interests part).

There are also some other terms, but they are used, with the same denomination, in banks worldwide. They are:

EURIBOR: short for Euro Interbank Offered Rate. In terms of Home Loans, this is important because it impacts the variable mortgage, as it is indexed to the EURIBOR (usually in a 6 month period).

Spread: this is the banks profit margin. In Portugal, banks usually publicize this aspect when comparing to the other banks offers. Right now, in Portugal, banks are lowering their spreads across the board. However, it’s advisable to look to the TAEG (APR) when comparing the offers.

 

4. Mortgage Loans in Life Insurance

When contracting a Mortgage Loan you will have to contract a life insurance as well. This insurance will cover for the loan in case of death or disability of the borrower and Portuguese demand the subscription of this product.

In the past, it was mandatory to subscribe this product in the bank where you contracted the loan. But recently the Portuguese Law changed that and now you can choose the life insurance from other providers in the market.

There are two types of Life Insurance products in the Portuguese market that are accepted by the banks when it comes to mortgage loans. These are called Morte e Invalidez Absoluta e Definitiva (IAD) and Morte e Invalidez Total e Permanente (ITP). The first one covers the death of the borrower and, also, his or her sickness when the insured can´t work as a wage earner and has to rely on a third party. The second one can be triggered when the insured loses their capacity to work on a job that fits with their knowledge and skills. The insurance can be activated when the person has to have 60% disability according to the Tabela Nacional de Incapacidades por Acidentes de Trabalho e Doenças Profissionais (Table of professional accidents defined by the Portuguese Legislation).

 

5. Home Valuation

To make a loan decision, the Portuguese bank will  evaluate the house that you intend to buy. This will affect the Loan-to-Value (LTV) which, in the case of foreigners, can range somewhere between 60% and 70%.

This means that, if the bank appraises the respective property at 100.000 Euros and is willing to finance 70%, you will have to be ready for a down payment of 30.000 Euros. The bank will then finance the rest.