How to get a Mortgage in Portugal: What you must know

Buying your dream home in the sunny land of azulejos, pastéis de nata and fado? To do so, you’ll probably need to borrow from a local financial institution. Fortunately, home loans are available to residents and non-residents alike, although there are a few key differences.

In recent years, Portuguese banks have offered increasingly competitive rates to international borrowers. With the right preparation and professional advice, this essential piece of the home-buying puzzle is within reach. Find out all you need to know about mortgage in Portugal.

 

 

Portuguese mortgage landscape

The Portuguese mortgage market is undergoing a remarkable transformation. With double-digit growth and an increasing variety of options, it is catching up with its European counterparts.

Key statistic: an impressive 87% of mortgages are variable-rate, including 80.8% of new mortgages in 2022.

 

However, fixed-rate options have emerged over the past five years, offering borrowers greater predictability. Portugal is adapting to meet the needs of its customers, in line with European best practice.

Mortgage quality is improving rapidly, making up for lost time. The country’s mortgage landscape is maturing and evolving to offer better options and services. So if you’re looking for a mortgage in Portugal, now is the perfect time to explore the possibilities and find what best suits your needs.

 

How do mortgages work in Portugal?

Mortgages in Portugal have specific features that are quite different from those found elsewhere. Here are the characteristics:

 

Types of mortgages

Whether you’re looking at a primary residence or a Portugal real estate investment, understanding your mortgage options is crucial. And there are many different types of loan:

• Mortgage: the classic loan that everyone knows about
• Renovation loans: for all the work you need to do on your home
• Construction credit: for building the home of your dreams
• Multifunções: to use your property as collateral for additional financing
• Remortgage: if interest rates fall, or if you wish to change the terms of your loan, it is possible to repurchase your loan from another bank during the life of your mortgage.

 

Loan term

The maximum term of a loan is 30 years for second homes, with a possibility of up to 40 years for principal residences and Portuguese residents.

 

Interest rates

There are 3 types of mortgage interest rate: fixed, variable and mixed.

The fixed rate remains the same for the entire term of the loan, from 3 to 30 years. This protects buyers against market fluctuations and EURIBOR.

Variable rates are revised annually, or every 3 or 6 months, depending on the conditions signed with the bank. They are generally indexed to Euribor.

The mixed rate is a compromise between fixed and variable. It offers a fixed rate for the first few years of the loan, before switching to a variable rate for the remainder of the term.

You can check our current best interest rates in Portugal on this link.

 

To define the rate, the bank adds up the following elements:
Reference rate + Spread = Interest rate

 

The reference rate depends on the type of rate and the term of the loan. It varies from bank to bank. The spread is the bank’s margin on your loan. It varies according to the bank and your profile/financial situation.

 

Loan-to-value (LTV)

LTV is the percentage of the acquisition value that the bank lends you. Even if it is very difficult to obtain 100% financing in Portugal, It can be as high as 90%, but the maximum is defined by several conditions:

• Acquisition amount
• Type of purchase:
  • Main residence, up to 90% maximum loan
  • Secondary residence, up to 80% maximum
  • Rental investment, up to 70% maximum
  • Commercial premises, on a case-by-case basis, but required deposit will generally be higher.
• Your financial situation
• The valuation of the property: a bank may lend you up to 90% in the case of a principal residence, if and only if this 90% represents a maximum of 85% of the property’s valuation price.
• Where you live and where your income comes from: income from the EU will give you a better LTV than income from Singapore, for example.

 

Minimum loan amount

Usually €50,000, but this varies from bank to bank

 

Borrowing age limit

You can borrow up to the age of 75. Some banks allow borrowing up to the age of 80 in certain cases, but this is becoming increasingly rare. Caixa Géral de Depositos, for example, has just abolished this rule and now limits borrowing to 75 years of age.

 

How do banks define your creditworthiness?

To define your solvency, the banks take a number of lending criteria into account. First, your debt-to-income ratio is calculated. This is the ratio of your total expenses, including loans, to your total income. In Portugal, we often speak of a maximum of 50%. The closer you get to this level, the more difficult it will be to obtain financing, or good financing conditions.

Then there’s the stability and durability of your income. Banks will give preference to permanent contracts, but it’s entirely possible to obtain financing if you’re self-employed, an entrepreneur, retired or have a passive income.

 

Residual savings will also be an important factor. Banks will ask you for a substantial downpayment, depending on your situation, but also for savings remaining after purchase. They see this as a safety mattress.

Every application is checked in the Bank of Portugal’s database to verify your credit history. If you come from abroad, you will be asked to provide a document from the bank in the country you come from. The aim is simple: to detect bad payers or high-risk profiles.

 

Preparing your mortgage application

Eligibility requirements and required documents

The documentation you’ll need to prepare your application is no different from what you’ll find in other European countries. In order to prepare you as well as possible and put the odds in your favor, here is a list of the documents you’ll need. This list does not take into account the specifics of your situation, and is provided as a guide only:

• ID or passport
• Portuguese Tax Identification Number – NIF: essential
• Employment contract
• Last tax assessment
• Last 3 pay slips
• Last 3 bank statements
• Proof of capital contribution
• Credit report or document from your country’s central bank
• Existing credit agreements
• Land tax if you already own property
• Documentation on the property you are buying:
  • Caderneta Predial e Urbana
  • Certidão Permanente
  • Plan

 

Self-employed workers

If you are self-employed, you will need to provide the bank with more information, particularly concerning your financial stability:

• Last 6 months of bank statements
• Last 6 months’ invoices
• If possible, your company’s last 3 balance sheets

 

Retirees

You will need to provide your last 3 retirement pensions.

 

Rental income

In the case of rental income, you will need to provide the following information for each income item:

• Property tax
• Associated credit agreement, if applicable
• Rental contract
• Last 3 months of bank statements showing income

 

Choosing the right type of mortgage

It’s not always easy to know how to go about taking out a loan in a foreign country. Fixed rate, mixed rate, variable rate, mortgage term, financing conditions, etc… All these criteria can quickly lose you. When it comes to choosing the type of home loan that’s right for you, there are a number of options available.

 

Loan types, what you need to know?

As mentioned above, you can choose between 3 types of loan. The criteria for your choice will be very personal, and you need to define your needs carefully.

 

Variable-rate mortgage

Variable rates give you great flexibility. They vary regularly according to the period contracted with the bank, and follow Euribor trends. They are often lower than fixed rates when you take out a loan. But you could see your mortgage rate rise in an unstable economic climate, or conversely, see it fall if Euribor falls. This is a major risk, but one that can pay off if you think the trend will be downward in the years ahead. They also make it possible to limit early repayment penalties. In a typical case, your penalty will be 0.5% of the outstanding principal, whereas it would be 2% if you were on a fixed rate.

Our recommendation: it’s for savvy borrowers, or those who want to take advantage of low short-term interest rates. The possibility of reducing prepayment penalties is interesting if you wish to resell your property within a few years. In our view, this is a short-termist strategy, but should be avoided if your ambition is to keep your loan for the long term.

 

Fixed-rate mortgage

The fixed rate does not change with the term of the loan, even if Euribor varies. It remains the same throughout the term of the loan, and offers a high degree of security. It’s the basic choice for peace of mind throughout your loan. It is even more suitable for long-term loans, to ensure constant monthly payments and avoid unpleasant surprises. However, it has 2 major drawbacks. Penalties for early repayment are higher: 2% of the outstanding capital. What’s more, rates are generally more expensive than variable rates.

Our recommendation: If you want to avoid unpleasant surprises and ensure security, choose a fixed rate. The low monthly payments of variable rates are just an illusion. If you have a long-term loan, don’t hesitate to choose a fixed rate.

 

Mixed rate

The mixed rate combines the best of both worlds. Because you start with a fixed-rate period of 2, 3, 5, 10, 15 or more years, you won’t have any nasty surprises. But on top of that, it offers you the flexibility of a variable rate once the fixed period is over.

Our recommendation: If your ambition is to resell your property at a later date, and you want to benefit from lower rates, this is the best compromise. You’ll benefit from the lower fixed rate because it’s shorter, and also from an early repayment penalty reduced to 0.5% once you switch to variable. Be sure to choose the duration of the fixed rate at the time of contracting.

 

Mandatory credit insurance and guarantees in Portugal

When you take out a loan in Portugal, you’ll need to take out a number of insurances and guarantees. Here’s a quick overview:

• Mortgage insurance: known as life insurance in Portugal, this covers your loan in the event of death, disability or loss of employment, depending on the terms and conditions. Regularly taken out with the bank, CAFIMO can negotiate a non-bank insurance policy for you, to save you money on this expense item.
• Home insurance: This is compulsory for all loans and covers damage to the property.
• Mortgage guarantee: This is the most common form of bank guarantee in Portugal. The bank guarantees the property you are buying in the event of default.

 

Focus on commercial loans

This type of loan is designed to finance the purchase of real estate for professional use (offices, commercial premises, warehouses). Eligibility requirements differ from those for a personal mortgage. This is not the main subject of this article, but here are a few things you need to know.

The company must be registered in Portugal and have a solid business plan. The minimum capital contribution varies considerably, and is often estimated at between 25% and 50%, depending on the case. Interest rates are generally higher than for a home loan.

 

Decoding loan offers from Portuguese banks

Compare rates (TAN, TAEG, Euribor…) and read between the lines

Understanding a Portuguese loan offer isn’t easy, especially if it’s not in a language you speak. To help you, here are some of the terms you’ll find in each one:

• FINE: European Standardised Information Sheet – This is the document standardized at European level, containing all the essential information on your loan offer.
• TAN: rate excluding insurance and fees, the first thing to compare. This is the interest rate offered by the bank on your loan.
• TAEG: rate including all ancillary charges, reflecting the real cost of the loan.
• Avaliação: the Portuguese word for the valuation of the property which is the subject of the loan.
• Escritura: This is the final deed at the notary’s office, granting you the status of owner.
• Euribor: reference interbank rate in the euro zone, varies daily.
• Caps and floors: limits on the variation of variable rates, which do not exist in Portugal.

 

Identify the best banks for your profile

If you’re looking for a home loan in Portugal, don’t rush into the first offer that comes along. You need to take the time to identify the best bank in Portugal that really match your profile. This is the key to finding the ideal offer.

First step: take a look at the main Portuguese banks. Industry giants such as Caixa Geral de Depósitos, Millennium BCP and Novo Banco are a safe bet, but don’t hesitate to challenge the smaller banks too. In 2022, Caixa Geral de Depósitos had a 25% market share, Millennium BCP 17%, Novo Banco 14%, Santander Totta 13% and BPI 11%, according to the Bank of Portugal.

 

Here are the criteria to look out for:

• Interest rates, but also the TAEG, which includes all ancillary costs. Aim for the best TAN/TAEG ratio.
• Quality of customer service, especially if you don’t speak Portuguese. It’s important to have someone who speaks your language to make sure you understand everything.
• The proximity of branches if you like physical contact. On the other hand, you can also be guided by the level of digitalization of services.
• Insurance policies (loan, home…) and rates. Here too, there are significant savings to be made by comparing.

 

To assist you in this process, you can use a specialized broker rather than going it alone. At CAFIMO, we, as mortgage brokers, will find you the mortgage loan that’s right for you. Our experts know the Portuguese market inside out and will negotiate on your behalf.

 

In short, to find the best bank in Portugal, take your time, research, negotiate, and surround yourself with the right experts.

 

The 6 key stages in your financing process

1. Define your budget and borrowing capacity: For this, you can contact CAFIMO, who will help you. Our services are entirely free for customers, so don’t hesitate!
2. Obtaining an agreement in principle: pre-aprovação. At this stage, your credit terms are not yet final. They need to be validated by the property valuation.
3. Make an offer to purchase and sign the preliminary sales agreement: don’t forget to include credit clauses! The seller will ask you for what is known as a “Sinal“, which usually represents around 10% of the purchase price. If you don’t include a clause and you don’t get the credit, you run the risk of losing your money.
4. Avaliação: This is the Portuguese word for appraisal. It is used to validate financing conditions.
5. Aprovação finale: The appraisal has been carried out and is sufficient for your financing. The bank will then issue its offer, with the final credit conditions.
6. Sign the deed and release the funds: 7 days after receiving the final offer, you’re ready to sign the final deed. The bank, the notary, the seller and, if necessary, your lawyer can now prepare everything you need. Go to the notary to collect the keys to your new property!

 

It usually takes between 1 and 3 months to obtain financing. At Cafimo, we’ve already financed customers in less than 25 days!

 

Focus on mortgage costs and insurance 

You’ve found the house of your dreams in Portugal and you’re ready to start the mortgage application process? Congratulations! But before you sign, let’s take a closer look at the costs and insurances associated with your Portuguese mortgage. Because nobody likes surprises when it comes to their wallet, do they?

 

First, let’s break down the various costs associated with a mortgage in Portugal:

 

Bank and notary fees

• Property valuation fees: Approximately 300 euros
• Mortgage application fees: Usually between €250 and €500. It depends on the bank.
• Notary and legal fees: Budget of around €500 to €1,000.
• Property registration fees: Approximately €250 more.

 

Taxes

• Property transfer tax (IMT): varies from 0 to 8% depending on the value of the property. The higher the price, the higher the tax. You can run a simulation here: https://www.apemip.pt/simulador-de-imt-e-is/
• Stamp duty tax on acquisition: 0.8% of the purchase price
• Stamp duty tax on mortgage: 0.6% of the mortgage amount

 

And don’t forget insurance:

• Life insurance
• Home insurance

 

The cost of each will really depend on your state of health and the type of property you’re buying.

You may be thinking, “Another expense!”, but the good news is that you can optimize these insurance costs. By entrusting your financing process to CAFIMO, we can negotiate with the banks to obtain external life insurance for you. This could save you up to 50% of what the bank could charge you.

 

How much can you borrow?

This is a very common question, and to answer it, we’re going to compare several situations.

 

I’m a Portuguese resident and a fiscal resident is in Portugal

This is the ideal situation. You’ll be able to borrow up to 90% if you’re buying a principal residence in Portugal, over a 40-year period under certain conditions.

 

I’m a non-resident with tax residence in the European Union

The fact that you’re not yet a resident won’t allow you to borrow the famous 90% you’re looking for. But having your income based in the European Union will enable you to qualify for 80% financing, over a maximum of 30 years.

 

I’m a non-resident with tax residence outside the European Union

Here, unfortunately, you won’t qualify for more than 70% financing. Banks will ask you for a 30% deposit at minimum. The maximum term is 30 years.

 

To calculate your monthly payments or borrowing capacity more precisely, please visit our mortgage calculator.

 

Mortgage in Portugal: answers to 10 common misconceptions

 

Myth 1: Getting a mortgage loan in Portugal is only for Portuguese citizens.

Fact: Non-residents and foreigners can get mortgages in Portugal, subject to certain conditions.

 

Myth 2: You need a perfect credit score to qualify for a Portuguese mortgage.

Fact: Good credit helps, but banks assess overall financial health and stability for approval.

 

Myth 3: Banks in Portugal don’t lend to foreigners.

Fact: Many Portuguese banks offer mortgages to foreigners, with some specialized products available.

 

Myth 4: You must speak fluent Portuguese to get a mortgage in Portugal.

Fact: Many banks have English-speaking staff; a translator can assist with paperwork if needed. CAFIMO also has multilingual brokers.

 

Myth 5: You need a huge down payment to get a mortgage in Portugal.

Fact: Down payments range from 10-30% minimum, depending on residency status and property type.

 

Myth 6: Getting a mortgage in Portugal takes forever.

Fact: The process typically takes 4-6 weeks, similar to other countries.

 

Myth 7: You need to have a permanent residence in Portugal to get a mortgage.

Fact: Non-residents can get mortgages; proof of income and tax compliance is required.

 

Myth 8: Self-employed individuals can’t get a mortgage in Portugal.

Fact: Self-employed can qualify with proof of stable income and tax returns.

 

Myth 9: You can’t get a mortgage for a property under construction in Portugal.

Fact: Banks offer construction mortgages, with funds released in stages as work progresses.

 

Myth 10: Portuguese banks don’t offer mortgages for investment properties.

Fact: Investment property mortgages are available, with varying terms based on the project.