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How to Get a Mortgage in Portugal: Your Guide

Achieving the dream of owning a home in Portugal is all about understanding the mortgage process.
Dot
April 13, 2024
Ana Fankhauser
April 13, 2024
TABLE OF CONTENTS

Achieving the dream of owning a home in Portugal is all about understanding the mortgage process. This article cuts straight to the chase on how to get a mortgage in Portugal, outlining eligibility, types, and application steps for residents and non-residents alike. Get ready to arm yourself with the knowledge needed to make informed decisions on this crucial aspect of homebuying.

Key Takeaways

  • To secure a Portuguese mortgage, applicants must demonstrate a stable income and solid credit history, with borrowing capacity varying based on residency status: 80–90% for residents and 60–75% for non-residents.
  • Portugal offers various mortgage types, including fixed-rate, variable-rate, retiree-specific, and commercial mortgages, with terms typically extending from 25 to 30 years and repayment required by age 70 to 80.
  • The mortgage application process in Portugal involves providing documents like identity proof and income evidence, undergoing property valuation, and navigating additional costs such as arrangement fees, valuation fees, building insurance, and property-related taxes.

Eligibility for a Mortgage in Portugal

House with a mortgage sign

To qualify for a Portuguese mortgage, certain prerequisites are required. Eligible applicants must showcase a solid credit history and a stable income capable of managing monthly mortgage payments that do not exceed 30–35% of their monthly individual or household income. The residency status of the applicant also plays a significant role in the mortgage process. Both residents and non-residents can apply for a mortgage in Portugal. However, non-residents must secure a Portuguese Tax Identification Number and provide proof of income.

The applicant’s residency status can affect the borrowing capacity. Resident applicants may borrow between 80 and 90% of the property value, while non-residents are generally limited to borrowing between 60 and 75%, necessitating a larger initial deposit.

Types of Mortgages Available

Mortgage application process in Portugal

The Portuguese mortgage landscape is diverse, offering a variety of mortgage types to suit different needs. With the help of a Portuguese mortgage lender, potential borrowers can explore options such as:

  • Fixed-rate mortgages
  • Variable-rate mortgages
  • Mortgages tailor-made for retirees
  • Commercial mortgages

Typically, repayment periods span between 25 and 30 years, necessitating full repayment by the age of 70 and 80.

Fixed-Rate Mortgages

Fixed-rate mortgages, also known as fixed rate mortgage, in Portugal offer stability by locking in the interest rate for a specified period. This safeguards borrowers from potential interest rate increases, ensuring consistent monthly mortgage payments despite market fluctuations.

Mortgage terms can vary from as short as 1, 2, or 5 years to as long as the entire term of the mortgage, extending from 3 to 30 years. For mortgages with a loan-to-value ratio of up to 70%, fixed rates in Portugal can be secured at 4.1% for terms up to 5 years.

Variable-Rate Mortgages

In Portugal, variable-rate mortgages are based on the Euribor rate plus a fixed percentage set by the bank. The Euribor has various rate periods that can influence your mortgage’s variable rate, including one-month, three-month, and six-month rates.

Bear in mind that monthly payments on a variable-rate mortgage may vary due to fluctuations in the Euribor, which is typically reviewed every six months. Currently, the mortgage spread for variable-rate mortgages in Portugal is 0.85 percent.

Mortgages for Retirees

Portugal’s mortgage market also caters to retirees, albeit with certain age limitations. Most banks in Portugal will not offer a mortgage to individuals over 70 years old, although some may extend the limit to 80.

Despite these restrictions, retirees aged 65–70 with a comfortable pension income may still be eligible for a mortgage. This means that Portugal can still be your haven in the sun, even if you’re planning to retire here.

Commercial Mortgages

Commercial mortgages in Portugal cater to those seeking to invest in commercial properties. However, these mortgages come with a higher initial deposit requirement of at least 50% of the sale price.

In terms of the loan amount, Portuguese commercial mortgages may offer up to 50% of the property’s price or valuation. This represents the maximum mortgage percentage for commercial properties in Portugal.

Mortgage Application Process

Mortgage application process in Portugal

Embarking on the mortgage application process in Portugal involves approaching a bank directly or going through an independent mortgage broker. Both routes have their own merits, and the choice often depends on personal preference and comfort level.

The process of applying for mortgage loans involves the following steps:

  1. Provide up-to-date documents, including proof of identity, employment contracts, and proof of income.
  2. The bank conducts a property valuation to determine the loan amount.
  3. Once the mortgage is approved, a formal offer is received.
  4. The lender helps arrange the completion date.

The final steps include signing the property and mortgage deeds before a Portuguese Notary and transferring funds to complete the purchase.

Choosing the Right Mortgage Provider

The choice of the right mortgage provider is a key step in the home buying process in Portugal. It involves comparing rates, fees, and overall terms from various financial institutions. Mortgage rates in Portugal vary widely, so a thorough comparison can potentially save you a significant amount over the term of your loan.

BBVA, Santander, Banco Best, Bankinter, and Banco CTT are among the financial institutions that provide various mortgage loan options. Customers have a wide range of choices when it comes to selecting the right mortgage for their needs. Therefore, it’s advisable to scrutinize the offerings of each institution carefully. To enhance your borrowing power, maintain a strong credit score, manage your existing debts, and potentially negotiate for lower interest rates.

Independent mortgage brokers, whether working for a bank or mortgage broker firm, can provide professional guidance, leveraging their market knowledge and relationships with lenders to secure better mortgage rates and terms.

Necessary Documents for Mortgage Application

Documents for mortgage application in Portugal

Applying for a mortgage in Portugal requires submission of several documents. These documents are necessary for the application process. These include a copy of your passport, a Portuguese tax number, and a recent proof of address. This helps to establish your identity and residency.

Evidence of employment and income is also required. This could include an employer’s reference letter, tax returns, and bank statements. Depending on your income source, you may need to provide different documents. For example, employed individuals must provide their last three pay slips and an employer’s reference letter, self-employed applicants need to show profit and loss accounts and tax returns from the last 1 to 3 years, and for rental income, a copy of the tenancy agreement and business bank statements for the last three months are required.

Mortgage-Related Costs and Fees

Apart from the mortgage amount, buying a property in Portugal incurs several additional costs. These include:

  • Arrangement fees
  • Administration fees
  • Valuation fees
  • Insurance fees
  • Deed registration fees
  • Non-refundable mortgage application or commitment fee (approximately €500)

Moreover, you will need to budget for property valuation surveys, which usually cost around €500–800, and bank legal fees, which include costs for searching the mortgage and outstanding debts against the property. These fees amount to approximately €1,100.

Additionally, building insurance is mandatory when securing a mortgage in Portugal. You should factor in these additional costs, typically adding an extra 6–10% to the property price, in your budgeting.

Property Taxes in Portugal

Purchasing a property in Portugal also brings with it certain tax obligations related to property investment. These include the Municipal Property Tax (IMI), Property Purchase Tax (IMT), and Tax on Stamps (IS).

The Property Purchase Tax (IMT) is paid at the time of purchasing a house and is an out-of-pocket expense separate from the mortgage. The Municipal Property Tax (IMI) is calculated by multiplying the property’s tax asset value by the appropriate IMI rate and funds the maintenance of public infrastructures within municipalities. The purchase price of the property plays a significant role in determining these taxes.

When securing a mortgage, the Tax on Stamps (IS) is one of the mortgage-related fees and taxes that must be considered along with property tax (IMT) in your overall mortgage budget.

Mortgage Insurance Requirements

Securing a mortgage in Portugal comes with specific insurance requirements. Life insurance is a standard requirement by banks in Portugal to secure their loan. This provides a safety net for the lender in the event of the borrower’s demise during the mortgage term.

In addition to life insurance, property insurance, specifically building insurance, is required by lenders. This covers at least fire and flood risks. Some banks may also require medical insurance in addition to life insurance. Although contents insurance is typically optional, it is recommended to protect the personal property within your new home.

Mortgage Repayment Terms and Conditions

In Portugal, mortgage repayments are usually due on the same date each month. However, the terms and conditions for early repayments vary depending on the type of mortgage. For fixed-rate mortgages, early repayment results in a fine on the repaid capital.

For variable-rate mortgages, deciding on early repayment incurs a charge of 0.5% on the repaid capital. Extra debt repayments also carry an additional fee. For variable-rate mortgages, this is 0.5%, while for fixed-rate mortgages, it is 2%. If you’re considering refinancing your mortgage, be aware that this may lead to early repayment charges ranging roughly between 2% and 5%, and lenders can typically extend the remaining years by no more than 25%.

Tips for Foreign Homebuyers

Foreign homebuyers in Portugal

Foreign homebuyers considering Portugal as their new home, should ideally start the mortgage process early. This allows ample time for document preparation and understanding your borrowing capacity.

Getting help from local experts can also facilitate the process. Companies like Goldcrest Real Estate in Portugal offer tailored assistance to help navigate the local market and purchasing process. This can be particularly beneficial for foreign homebuyers who may not be familiar with the intricacies of the Portuguese real estate market.

Summary

Acquiring a mortgage in Portugal, whether you’re a resident or a foreign homebuyer, requires careful consideration and meticulous planning. From understanding eligibility criteria to choosing the right mortgage provider and navigating the application process, every step is crucial. Incorporating these insights and tips can simplify the process, ensuring you’re well-equipped to embark on your home buying journey in Portugal.

Frequently Asked Questions

What is the eligibility criteria for obtaining a mortgage in Portugal?

To obtain a mortgage in Portugal, you need a good credit history, stable income, and residency status. Residents and non-residents can apply, but non-residents must secure a Portuguese Tax Identification Number and provide proof of income.

What types of mortgages are available in Portugal?

In Portugal, you can find fixed-rate, variable-rate, retiree, and commercial mortgages. Each of these options offers different benefits and considerations for potential homebuyers.

What are the insurance requirements for a mortgage in Portugal?

In Portugal, lenders require life insurance, building insurance, and possibly medical insurance for a mortgage.

Can I repay my mortgage early?

Yes, you can repay your mortgage early, but be aware that there may be fines on the repaid capital, and the charges depend on your mortgage type.

What taxes are associated with property purchase in Portugal?

When purchasing property in Portugal, you will be required to pay several taxes, such as the Municipal Property Tax (IMI), Property Purchase Tax (IMT), and Tax on Stamps (IS). These taxes are associated with property acquisition in Portugal.

About Movingto

Movingto is a leading immigration law firm that specializes in helping individuals and families navigate the complex process of relocating to Portugal. With a team of experienced lawyers and immigration experts, Movingto.io provides tailored solutions to meet the unique needs of each client.

Why Choose Movingto?

  • Expertise and Experience: Our lawyers have extensive knowledge of Portuguese immigration law and years of experience assisting clients with various visa applications, including the D7 Visa, Golden Visa, Startup Visa, and Family Reunion Visa.
  • Personalized Approach: We understand that every client's situation is different. Our lawyers take the time to listen to your goals and provide personalized advice and guidance throughout the process.
  • Comprehensive Support: Movingto.io offers a comprehensive range of services beyond legal advice, including assistance with document preparation, property search, and relocation planning.
  • Competitive Fees: We offer competitive fees and transparent pricing so that you know exactly what to expect.
  • Exceptional Client Service: Our team is committed to providing exceptional client service. We are responsive, attentive, and always available to answer your questions.

Whether you are an entrepreneur seeking to establish a business in Portugal, a retiree looking to enjoy the country's favorable tax regime, or a family seeking to reunite in Portugal, Movingto.io is here to guide you every step of the way.

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