Mortgages & Interest Rates
Types of property
Finance is available for the purchase of property in Portugal. Stage payments for construction of a property will also be considered.
The Bank will satisfy itself that an applicant is in a financial position to be able to meet the conditions of the loan which will be based on “affordability”.
If an applicant is self-employed, an application must be accompanied by audited accounts for the previous three years together with the current year’s management or unaudited accounts, satisfactorily certified by an accountant acceptable to the Bank, together with three years tax returns.
The Bank will usually consider lending up to 65% of the valuation of the property, or purchase price whichever is lower, with a minimum loan of GBP 100,000 or the Euro equivalent thereof.
Loans are available in EUR and GBP. Interest will be charged at a margin over the Bank’s mortgage loan rate applicable to the currency borrowed.
The bank currently has two main mortgage products available
Variable rate mortgage
The interest rates of a Portuguese variable rate mortgages is linked to either the 3 or 6 month Euribor rate and increased by the margin (spread) that the bank applies.
This Euribor rate is set by a panel of European banks on a daily basis and is generally an indicator as to what rate European banks will lend to each other at (in the UK they use the London inter bank offer rate (LIBOR). Euribor rates can be accessed on the following site www.euribor-rates.eu/
In the case of the three month Euribor rate, your mortgage repayments will be fixed for three months at the prevailing rate at the day you sign the mortgage deed, thereafter, every three months later the bank will apply the average rate of the three month Euribor rate to your mortgage from the previous month.
The interest rate margin (spread) will be confirmed on the day the mortgage is approved and will be fixed for the term of the loan.
The early redemption penalty for a variable rate acquisition mortgage is 0.50% as per the regulation of the Bank of Portugal.
Fixed rate mortgage
A fixed rate mortgage allows you to budget for future mortgage payments as the monthly cost will remain constant throughout the fixed rate period and you are protected from future increases of the European base rate.
Fixed rate mortgages are available from some lenders and the fixed rate period can range from 1-30 years.
The rate is usually fixed on the day of the mortgage deed signing (may vary depending on lender) and is based on the prevailing SWAP rate for the chosen fixed rate period.
The SWAP rate is then increased by the interest rate margin (spread) which is also fixed for the life of the mortgage.
After the fixed rate period expires, the mortgage will automatically convert into a variable rate mortgage (unless the rate is fixed for the entire loan period).
The early redemption penalty during the fixed rate period is 2% as per the regulation of the Bank of Portugal