Thinking about applying for a Portuguese mortgage?
If you are undecided on the financial route or options available to purchase your dream Algarve property in this article we will try to clarify the alternatives.
If you are already an owner of a property in another country and have sufficient equity, you may decide to take out a further mortgage, or perhaps a new one on that property to help finance your house purchase in Portugal.
Economic conditions in Portugal have improved over the last few years and there is renewed interest from banks and lenders in helping foreigners who wish to purchase the property.
The Benefits of Taking out a Mortgage
The main benefit of taking out a Portuguese mortgage is that the bank or lender is obligated to take out a valuation on the property and carry out all legal checks before the sale can go ahead.
Also on the plus side is that you could decide to let your property to short- or long-term tenants and your rental income if paid in euros could be used to offset or even cover the mortgage payments from your Portuguese bank.
If on the other hand, you choose to use a non-euro mortgage financed from abroad you would be exposed to foreign currency exchange risks.
Some other benefits of getting a mortgage include:
- Mortgages in Portugal have low rates so instalments are also low.
- Foreign citizens with no residency in Portugal can still get a mortgage from Portuguese banks.
- Properties purchased in Portugal with a mortgage can be rented out without restrictions.
At what stage should I apply for a mortgage in Portugal?
The best time to start the mortgage process is as early as possible, even if you have not yet finalised the type of property you want to buy.
Beginning the process as early as you can gives you a good idea of the maximum price you can afford and the limit you may be able to access through financing.
Doing it this way your property search will be so much easier and you will be able to make quicker decisions on when you find a property. It will also help in the negotiation of the price and show you are a serious buyer.
Compare Mortgages from Different Banks
Your first priority should be to compare all banks and find the best rates available to you. There are over 15 banks in Portugal that provide mortgage loans and credit to purchase a property. Which includes BBVA, Santander, Bankinter, Banco Best, Banco CTT and others.
Each Portuguese bank is different in the criteria they require. Depending on your circumstances you may not always be offered the perfect loan or in some cases the best current deal available.
Our specialist team at Gatehouse International Algarve can introduce you to an English-speaking broker who will match your financial profile to the best lenders who will be in a position to offer you a mortgage.
What Types of Mortgages are Available in Portugal?
Unsure about which kind of Portuguese mortgage would be suitable for your situation and financial standing? In this article, we look at the different mortgages available and clarify the differences.
The Fixed-Rate Mortgage
The Portuguese fixed-rate mortgage, as in most countries, basically allows the borrower to pay a constant interest rate over the agreed repayment period.
The main advantage is that it guards you against fluctuations in the Euribor or European base rate (basically the interest rate set by the central EU bank).
This rate is usually set and agreed upon with the financial institution when applying for the mortgage. Normally it will be a few points above the Euribor at the time of applying to cover fluctuation.
There are variations of this mortgage so be sure to understand the terms of your contract before committing.
Some lending institutions offer this rate fixed for the entire term of the loan, so you will be sure of exactly how much your monthly payments will be.
While with others it is set for a certain period during the life of the loan. When the period ends the loan is then repaid at the variable rate (see below). There can also be early repayment penalties involved with this type of finance so be sure you know the details before signing.
With this type of loan, the monthly repayments fluctuate in line with the Euribor index. During the repayment period, the monthly payments are revised every six months based on Euribor rates. If you decide on early repayment you could be charged 0.5% on the repaid capital.
A Few Points to Clarify
The maximum mortgage in Portugal for non-residents is between 60% to 70% of the purchase price. So you will need to find a deposit of between 30-40% of the value of the property you intend to buy.
If you are looking to buy a plot of land in the Algarve and build your own house or buy a renovation project there is an option to apply for a construction mortgage.
You can normally borrow 50% to 60% of the combined costs of the land and construction. However, these mortgages are very complex and you should seek specialist advice from a local mortgage broker who is skilled in this field.