Getting a mortgage in Portugal is very common if you plan to purchase a property in Portugal which has many advantages comparatively low real estate prices and very few restrictions for foreigners acquiring property. Also, the Portuguese mortgage is available to both residents and non-residents of Portugal. Either can apply for a mortgage from the Portuguese banks.
In fact, it is easier for foreigners to get a mortgage if they already plan to buy a property in Portugal. In recent years, lenders have become more helpful than before for foreigners to apply for mortgages. People can get mortgages for all types of real estate including residential, commercial, industrial, etc. So regardless of if you’re buying a home, a shop, a restaurant, you can leverage your investment. Another advantage of getting a Portuguese mortgage is that the mortgage rates in Portugal are relatively low.
When to start applying for a Portuguese mortgage
It is best to start applying for a mortgage in Portugal as early as possible in your way to purchase real estate. It is not even necessary for you to have decided on which type of real estate you will buy. Furthermore, if you start applying earlier, you will be aware of how much you should pay for the property and other related costs in the future. In this way, you can know if you can afford the property or not.
Types of Mortgages in Portugal
There are two types of repayment options, one being on a fixed rate, and the other one being a variable rate.
Fixed-rate mortgages help borrowers pay the mortgage at a constant rate for a certain period. This period can be either one year or can extend for as long as 30 years. If it is for a short term, then it can transform into the type of variable-rate mortgage. The advantage of the fixed-rate mortgage is that it protects you from the fluctuations in a bank’s rate and the European base rate. On the other hand, if you decide to repay early, then you may have to pay a fine on the repaid capital.
This is the most common type of mortgage. In Portugal, variable-rate mortgages start at a rate of 3.3% a year when the loan-to-value ratio is 30%. As an alternative to this, the fixed rate is 4.1% (up to 5 years) when the loan-to-value ratio is up to 70%.
With this type of mortgage, you can pay different amounts each month, depending on the interest rate. It may last as long as thirty years for most non-residents of Portugal. For the variable-rate mortgage too, when you decide on early repayment, you will be charged on the repaid capital (0.5%).
Variable mortgage rate Portugal is indexed to the EURIBOR (it is a basic interest rate reference used to set the interest rates Portugal has on home loans).
The Minimum Deposit and Loan-to-Value Ratio
For non-residents in Portugal, the minimum deposit for a mortgage is 30%, and the maximum loan-to-value ratio is 70% of the purchase price. Most of the banks offer loans up to 65%-75% of the property value or the sale price. In some cases, for fiscal residents, it is possible to borrow up to 85%-90% of the same price.
It is essential to compare banks before you apply for a Portuguese mortgage. You can find more than fifteen banks in Portugal that offer different mortgage loans. Some of the mentioned banks are:
- Banco Best
- Banco CTT
Required Documents to Apply for a Mortgage in Portugal
Portuguese lenders require a list of documents for the application of mortgages. In addition to the necessary documentation, you will be asked to present a few more documents depending on your employment status. You can see the required documents below:
- Copy of passport
- Portuguese tax number (NIF)
- Proof of income
- Personal bank statements of the last three months (including the incoming and outgoing capital)
- Proof of address (i.e., recent utility bill)
- Recent mortgage statement
- Proof of saving or investment accounts
- Bank reference letter
- Purchase commitment or sales contract (of the property)
- Last year’s tax returns
- Payslips of the last three months
- Reference letter from your employer (a letter including the information about how long you’ve been working in the company, and how much your gross annual salary is and other incomes such as bonuses and so on)
When self-employed (when you hold at least a 20% share in a limited company):
- Last year’s tax returns
- Business bank statements for the last three months
- Three years of company profit & loss and balance sheet
- Proof of pension income for the last three months
- Copy of tenancy agreement for rental properties
- Last three months’ statements showing rent received
- Copy of investment certificates
In addition to these, the bank may require other necessary documents according to the level of risk assessment.
Applying for a Mortgage
The first thing to do is getting in contact with a bank or a mortgage broker. After the initial assessment, you can follow the steps below:
Within 1-2 days, you will receive a full mortgage quote. There is usually a charge when preparing a quote.
Submitting the application forms
When you receive the formal quote, you will fill in an application form. Then you will submit other related documents.
You will receive a formal offer when the mortgage is approved. Later, your broker approves the conditions of the offer and helps you with the rest of the procedure.
After receiving the mortgage offer, the bank will set a valuation of the property. When the valuation’s amount is at least the purchase price, and when there is no issue about the property, then the details will be confirmed.
Before the completion date, you must transfer the funds to the appropriate account. When you prove that your funds for the property purchase are available, your lender will carry out the mortgage application. Then, the completion date will be certain.
When you sign the property and mortgage deeds before the Portuguese Notary and pay all the related taxes and fees, you will become the new owner of the property.
Fees Related to the Mortgage Applications
Regular mortgages require around €300 for mortgage advisor services, and it will be refunded when the mortgage procedure is complete.
Bank Application Fee
Depending on the bank, the fee will change from €150 to 0.50% (plus tax) of the loan amount. When banks cannot make a mortgage offer, most of the time, they will not charge you.
Bank Valuation Fee
It ranges from €175 to €500 and tax. However, sometimes the bank may have done a valuation. In this case, there will be no need for further valuation.
Bank Legal Fees
Your bank will need their own lawyers to search for the mortgage and outstanding debt against the property. The fee is not fixed; however, all the fees will make up an amount of €1,100, and bank legal fees are included in this total fee.
Most of the lawyers charge you around 1%-2% of the property’s purchase price.
Taxes and Notary Fee
These make up around 5%-6% of the purchase price.
Following the completion of the mortgage, the Portuguese government receives 0.60% of the mortgage amount from the applicant’s bank account.
Frequently Asked Questions
What are the lending criteria for a mortgage in Portugal?
Usually, the banks analyze your financial position and the property’s valuation.
Which documents are accepted as proof of income?
When applying for a mortgage, foreign investors can prove their income in different documents, for example, via your rental income, dividend payments, salary income, investment income, and pension income. These incomes are proven via payslips or pension slips, tax returns, and bank statements.
Is it possible to take out a mortgage for business purposes in Portugal?
Yes, if you plan to buy a property such as a restaurant or a shop for business purposes, you can take out a mortgage. The maximum mortgage you can take is 50% of the price or the valuation if the valuation is lower.
Can retirees take out a mortgage in Portugal?
Yes, if the retiree has a regular pension income.
Are there mortgages for construction?
Yes, there are. You can take around 50%-60% of the total cost of land and construction. However, it is best to consult a mortgage broker if you plan to apply for this kind of mortgage.
What is the cost of buying a house in Portugal?
Below are the taxes and other fees you need to pay when you undertake a home loan:
- Property tax (IMT) : Varies between 2% and 8%.
- Stamp Duty Tax (IMI): 0.8% of the price of the property
- Notary, registry, and
- tax office fees for property deeds: €1,200
- Estimate of legal fees: €1,800
What is the age limit to take out a mortgage?
Most of the banks offer mortgages to borrowers aged up to 70 years. However, some banks accept individuals aged up to 80.
What is the loan term for residents and non-residents?
For residents, the banks offer terms up to 50 years, while for non-residents, the duration is up to 30 years.
Is it necessary to have life insurance while signing a mortgage loan?
Yes, you have to contract life insurance when you sign a mortgage loan. Sometimes, some banks require home insurance as well.
What is EURIBOR?
Euro Interbank Offer Rate (EURIBOR) is basically a reference rate that eurozone banks use. It is based on average interest rates. Mortgage rates Portugal also depend on this.