MORTGAGE IN
Portugal

Buying property in Portugal with a mortgage

A mortgage in Portugal is a long-term loan used to purchase property, with the property itself serving as collateral. The buyer pays part of the purchase price using their own funds, while the remaining amount is provided by a credit institution. Once the transaction is completed, the buyer becomes the owner of the property, while the mortgage remains registered as an encumbrance until the loan has been repaid in full.

Mortgage financing can be used to purchase an apartment or house as a primary residence, a second home or for another purpose permitted under the terms of the agreement. The availability and terms of the loan are determined individually. The buyer’s financial situation, the intended use of the property, its value and its characteristics are taken into account.

A preliminary calculation provides only an indicative financing amount and estimated payment. The final terms are determined after the application has been reviewed and the selected property has been valued. Therefore, when purchasing property with a mortgage, both the loan terms and the characteristics of the property must be considered.

How mortgages work in Portugal

The terms of a mortgage loan are determined by several interconnected factors. When comparing offers, it is not enough to consider only the advertised interest rate or the amount of the regular payment.

• A personal contribution is required. A mortgage generally covers only part of the property’s value. The amount of the buyer’s own funds depends on their circumstances, the intended use of the property, its valuation and the terms of the specific offer.
• The financing amount is linked to the property valuation. The purchase price and the result of an independent property valuation are considered when determining the available financing amount. If the appraised value is lower than the agreed purchase price, the buyer may need to provide more of their own funds.
• The property serves as collateral. A mortgage encumbrance is registered against the property until the loan has been repaid in full. The buyer nevertheless becomes the owner of the property once the purchase has been completed.
• The buyer’s regular financial commitments are considered. The assessment takes into account not only income but also existing credit obligations and the expected mortgage payment. This helps determine whether the new loan is affordable for the buyer.
• The final terms apply to a specific property. A preliminary calculation does not guarantee that a particular amount will be available for any property. Once a property has been selected, it is valued and the loan terms are finalised.

Three main types of interest rate are used in Portugal:

• A fixed interest rate remains unchanged for an agreed period or for the entire term of the agreement. It makes payments more predictable and protects against interest rate increases during the fixed-rate period, although the initial terms may differ from those offered with a variable rate.
• A variable interest rate is reviewed at the intervals specified in the agreement. It usually consists of a market index and a margin set by the credit institution. When the index changes, the payment may increase or decrease.
• A mixed interest rate combines both options. A fixed rate applies during the initial period, after which the agreement switches to a variable rate.

No single type of interest rate is suitable for everyone. The choice depends on how important payment stability is to the buyer, whether they are prepared for possible fluctuations and how long they intend to hold the mortgage.

In Portugal, a mortgage loan can be repaid partially or in full before the end of the agreement. Any early repayment fee is limited by law, while the method used to calculate it depends on the type of interest rate and the terms of the agreement. The terms of an existing loan may also be reviewed, but any change to its duration, interest rate or other conditions requires the credit institution’s agreement. Before repaying a loan early or changing an agreement, the rules and conditions applicable at that time should be checked.

What to compare in mortgage offers

Mortgage offers are compared using the FINE — the European Standardised Information Sheet, which the credit institution must provide before the agreement is concluded. It includes:

• the loan amount and term;
• the type of interest rate;
• the amount and frequency of payments;
• the annual percentage rate of charge, including associated costs (TAEG);
• the total amount payable (MTIC);
• fees, insurance and other associated costs;
• additional products, if they are linked to the terms of the offer.

The nominal interest rate should not be considered in isolation from the total cost of the loan. Two offers with similar interest rates may differ because of fees, insurance and additional products. The FINE makes it possible to identify these differences before signing the agreement.

The currency in which the buyer receives their income also requires particular attention. If the buyer’s income is not in euros, exchange-rate movements may affect the actual financial burden: the same payment in euros may require a larger or smaller amount in another currency.

In addition to the buyer’s personal contribution, the costs associated with arranging the mortgage and purchasing the property must be considered. Their composition depends on the specific offer and transaction. These amounts should be assessed separately from the property price and included in the overall purchase plan in advance.

Before choosing a mortgage, it is useful to compare the loan term, type of interest rate, regular payment, total cost of the loan, early repayment conditions, associated products and the conditions for obtaining them. This provides a more complete understanding of the mortgage than the interest rate alone or a preliminary estimate of the monthly payment.