The best interest rates on the Portuguese market, for all situations
Fixed Rate
The fixed interest rate remains unchanged throughout the loan, which means that your monthly payments will always be the same, regardless of changes in Euribor. This is a great benefit, although fixed rates are generally higher than variable rates.
Variable Rate
Variable Rate adjusts each year in line with Euribor variations. It's a riskier option, but can be attractive depending on the nature of your project.
Mixed Rate
Mixed rates combine fixed and variable. It offers an initial fixed rate period followed by a variable rate. As the fixed period is usually small, rates are also cheaper. This provides some stability with potential savings if rates decrease during the variable period.
Interest rates spreads in Portugal
Essentially, the spread is the margin that Portuguese banks charge on top of the benchmark rate (like Euribor) when lending you money for a mortgage. Banks make profit from this spread. There are several key factors impacting the spread:
- How creditworthy you are, based on your financial situation
- The ratio of your mortgage amount compared to the property value : the loan-to-value (LTV) ratio
- Operational costs for the bank, and their desired profit margins
Although it's difficult to estimate the spreads of different banks, it's the role of our broker teams to negotiate as much as possible on your behalf to get you the best possible financial terms.
When taking out a mortgage, it's important to know that not all banks offer the same conditions. Even for an identical scenario, the spreads offered can vary significantly. To illustrate this, here is a clear example:
- Bank A would offer a spread of 1.2% + reference rate
- Bank B would offer a spread of 1.5% + reference rate
This small difference of 0.3% may seem insignificant, but it has a high impact over the duration of your mortgage. For an amount of €200,000 over 25 years, this represents a difference of €8,367.
Do you need help for your mortgage?
Although it is difficult to estimate the spreads of the various banks, the role of our brokers is to negotiate as much as possible for you. The aim is to get you the best possible financial conditions.
Euribor and its impact on housing loans in Portugal
Euribor (Euro Interbank Offered Rate) plays a crucial role in determining variable mortgage rates in Portugal. It's the interest rate European banks lend money to each other. Here's how Euribor affects your home loan:
- When Euribor rates climb, your variable mortgage payments increase. But when Euribor drops, it decreases.
- Many Portuguese banks utilize the 6-month Euribor as a benchmark for variable rate mortgages.
Historically, Euribor rates have fluctuated pretty significantly:
- In 2008, the 6-month Euribor peaked near 5.4%.
- By 2015, it plunged into negative territory, bottoming at -0.4% in 2021.
- As of March 2023, the 6-month Euribor stands around 3.4%, increasing borrowing costs for homeowners with variable mortgages.
Tracking Euribor trends matters if you have or want a variable rate mortgage in Portugal. While you can't control Euribor, grasping its impact helps with informed home loan decisions.
Calculating your mortgage payments
In Portugal, when looking at mortgages, you'll encounter two important terms: Nominal Annual Rate (TAN) and Annual Percentage Rate (TAEG).
Your interest rate is the TAN. The TAEG is similar to the TAN but also includes additional costs like fees, life insurance and home insurance. TAEG is really helpful when it comes to comparing loan offers to have a clear picture of mortgage costs.
To estimate your monthly payments, you can use our mortgage calculator. Simply enter your interest rate and the calculator will do the rest.
You’ll want to keep in mind that even small differences in interest rates can make a big difference on your monthly payments. Let’s look at an example:
- A €200,000 mortgage at 2% over 30 years = €739 per month. The same one at 3.5% = €898 per month.
- That’s a difference of €159 per month or €57,186 over the full term! So when you’re looking for houses in Portugal, consider how the interest rate might affect your budget.
Factors affecting mortgage interest rates in Portugal
Many factors influence the rise and fall of interest rates in Portugal. The Bank of Portugal (Banco de Portugal) is responsible for the country's monetary policy and for regulating the banking system. Capped rates do not exist, nor is there a usury rate. Borrowers are therefore more exposed to the risk of rates rising, or conversely, falling. Here are some of the key factors influencing rate variations.
Economic conditions and monetary policy:
- If the European Central Bank raises benchmark rates, bank lending rates often follow suit
Your credit profile:
- A decent credit score can lead to a lower interest rate
- An irregular credit history may result in higher rates, or even loan refusal
Loan-to-Value ratio (LTV):
- This is the amount you borrow compared to the property value
- A lower LTV (meaning a larger down payment) often means a better rate
Property type:
- Some banks offer different rates for primary residences vs. vacation homes, as for Portuguese residents vs expats.
Mortgage term:
- Longer terms tend to have higher interest. There's increased risk for banks with prolonged lending, so a 30-year mortgage loan typically costs more than a 10-year one. This is not always true in the case of unstable short-term economic situations, but it is often the rule to bear in mind.
Studying economic trends and working on your credit score proves valuable for navigating Portugal's mortgage rate landscape. And remember, even small rate variances compound significantly over time, so act wisely.
Frequently asked questions
How often do variable rates change?
Variable mortgage rates can change frequently. They typically fluctuate whenever the underlying benchmark rate, such as Euribor, goes up or down. Lenders usually revise variable rates every 3 months, 6 months or year, depending on the terms of your loan agreement. Pay attention to Euribor trends to anticipate changes in your variable mortgage rate.
Can I switch from a variable to a fixed rate mortgage?
Yes, you can switch from a variable to a fixed rate mortgage in Portugal. Contact your CAFIMO broker to find out about your options and any fees that might apply. While switching will give you stable payments per month, be aware that changing lenders or paying off early could incur early repayment charges.
What happens if Euribor rates increase significantly?
If Euribor rates rise significantly, then your variable mortgage rate will follow. This will lead to higher monthly payments. To help lower the impact of this increase, you could consider switching to a fixed rate mortgage instead. It is important that you plan for potential increases and keep some money aside for financial support.
What is housing market mortgage rate portugal ?
As of March 2024, average housing market interest rates are around 3.5% for variable-rate mortgages, and 4% for fixed-rate mortgages. Keep in mind however that rates may vary per bank, loan-to-value ratio and borrower’s credit profile. So it's always smart to compare offers from multiple banks before deciding on one offer.