Renting Out Your Primary Residence: What You Need to Know
Many homeowners wonder whether they can rent out a property that was purchased as their primary residence. Whether due to a job relocation, a change in family circumstances, or simply as an investment opportunity, this is a common question with important legal, tax, and banking implications.
Do You Need to Inform the Bank?
There is no legal requirement to inform your bank if you decide to rent out a property that was financed as your primary residence. However, transparency is generally advisable, especially if your mortgage contract includes specific clauses about property usage.
Tax Implications
Switching from owner-occupied to rental use has several tax consequences:
- Change in property status: The property is reclassified from primary residence to secondary residence for tax purposes.
- Loss of IMI exemptions: If you were benefiting from IMI (annual property tax) exemptions for primary residence, these will no longer apply.
- Rental income taxation: Rental income must be declared and is subject to income tax.
Tax Benefits for Landlords (2023 Measures)
The Portuguese government introduced tax incentives to encourage the rental market:
- Landlords can benefit from IRS exemptions ranging from 9% to 30% on rental income, depending on the duration of the rental contract.
- Longer rental contracts attract higher tax exemptions, incentivizing housing stability for tenants.
Banking Protections
Law 13/2019 provides important protections for borrowers. Banks are prohibited from worsening the conditions of your mortgage (such as increasing the spread or requiring additional products) solely because you decide to rent out the property. Your existing contract terms are protected.
Considerations for a New Mortgage
If you are considering purchasing a new primary residence while renting out the current one, be aware that:
- The new mortgage will be assessed based on your total debt-to-income ratio, including the existing loan.
- Conditions for a second property mortgage may be less favorable (lower LTV, higher spread).
- Rental income may or may not be fully considered in your income assessment, depending on the bank.
At CAFIMO, we can advise you on the best strategy for your specific situation, whether you are looking to rent out your current home or purchase a new property. Contact us for a free consultation.
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