Applying for a mortgage in Portugal can offer many benefits, including low interest rates, long repayment terms, and the potential for investment and residency opportunities.
However, it’s important to do your research, understand the requirements and factors involved, and work with a reputable lender or mortgage broker to find the best mortgage option for your individual circumstances.
Benefits of taking a mortgage in Portugal
Long Repayment Terms
Mortgages in Portugal typically offer long repayment terms, up to 40 years in some cases. This can help make monthly payments more affordable, as borrowers can spread out the cost of the loan over a longer period of time.
Stability and Predictability
Fixed-rate mortgages in Portugal provide stability and predictability, as borrowers can lock in a fixed interest rate for the life of the loan. This can help borrowers plan their finances and avoid unexpected increases in monthly payments.
Investment Opportunity
Purchasing a property with a mortgage in Portugal can be a sound investment opportunity, as the country has a stable and growing housing market. Homeownership can also provide financial security and long-term wealth accumulation.
Types of mortgage in Portugal
Fixed-Rate Mortgages
Fixed-rate mortgages are a popular option for homebuyers in Portugal. This type of mortgage allows borrowers to lock in a specific interest rate for the duration of the loan term.
This means that borrowers can budget effectively for their monthly payments, knowing that their payments will not fluctuate due to interest rate changes.
In Portugal, fixed-rate mortgages typically have a term of up to 30 years, and the interest rate is usually higher than that of variable-rate mortgages.
However, borrowers who opt for fixed-rate mortgages benefit from the certainty and stability of a fixed monthly payment, which can make budgeting and planning easier.
Variable-Rate Mortgages
Variable-rate mortgages, also known as adjustable-rate mortgages, have an interest rate that can fluctuate over time based on market conditions.
This means that borrowers’ monthly payments may change, and they may end up paying more or less than they initially budgeted for.
In Portugal, variable-rate mortgages usually have a lower interest rate than fixed-rate mortgages, which can make them an attractive option for borrowers who are willing to take on more risk.
However, variable-rate mortgages can be unpredictable, and borrowers should be prepared for the possibility of their monthly payments increasing over time.
It’s important to note that some variable-rate mortgages in Portugal have a cap on how much the interest rate can increase over the life of the loan. This means that borrowers are protected from sudden and drastic increases in their monthly payments.
Interest-Only Mortgages
Interest-only mortgages are a type of mortgage where borrowers only pay the interest on the loan for a set period of time, usually between five and ten years. During this time, the borrower’s monthly payments are lower than they would be for a capital and interest mortgage
In Portugal, interest-only mortgages are less common than fixed-rate and variable-rate mortgages. They can be a useful option for borrowers who want to keep their monthly payments low in the short term, but they come with some risks.
After the interest-only period ends, borrowers will need to start paying both the principal and interest on the loan, which can result in significantly higher monthly payments.
Interest-only mortgages can also be risky for borrowers who plan to sell their property before the end of the interest-only period, as they may not have paid down any of the principal on the loan.
This means that they may not have built up any equity in the property, which can make it harder to sell or refinance in the future.
Loan-to-value and Down payment
The loan-to-value (LTV) ratio for a foreigner in Portugal will depend on various factors, including the lender’s policies, the borrower’s financial situation, and the property’s value.
In Portugal, foreigners are allowed to apply for a mortgage to buy a property. However, lenders may require a higher deposit from foreign borrowers compared to Portuguese citizens.
Usually, lenders require a minimum deposit of 20% of the property’s value from foreign borrowers, while Portuguese citizens can get a mortgage with a deposit as low as 10% or even 5% in some cases.
Therefore, the maximum loan-to-value ratio for a foreigner in Portugal is typically around 80%.
For example, if a property is valued at €200,000, a foreigner may be able to borrow up to €160,000 (80% of the property’s value) and will need to make a deposit of €40,000 (20% of the property’s value).
How to apply for a mortgage in Portugal
Step 1 – Research Lenders
The first step is to research lenders that offer mortgages to foreigners in Portugal. You can use online resources, seek recommendations from real estate agents, or work with a mortgage broker.
Step 2 – Gather Required Documentation
Next, you will need to gather the required documentation, which typically includes a valid passport, proof of income, bank statements, and a credit report.
Step 3 – Submit Application
Once you have chosen a lender and gathered the necessary documentation, you can submit your mortgage application. This typically involves providing personal information, employment details, and information about the property you wish to purchase.
Step 4 – Obtain a Mortgage Offer
If your application is approved, the lender will provide you with a mortgage offer that outlines the terms and conditions of the loan, including the interest rate, repayment schedule, and any fees or charges.
Step 5 – Property Valuation
Before approving the mortgage, the lender will usually require a property valuation to ensure that the property is worth the amount being borrowed.
Step 6 -Sign the Mortgage Agreement
Once the property valuation is complete and you have reviewed and agreed to the terms of the mortgage offer, you will sign the mortgage agreement.
Step 7 – Finalize the Purchase
After the mortgage agreement is signed, you can proceed with finalizing the purchase of the property. This typically involves transferring the funds to the seller and registering the property in your name.
Required documentation for foreigners applying for a mortgage in Portugal
Non-residents will typically need to provide the following documentation to support their mortgage application:
- Passport
- Portuguese Tax Number (NIF)
- Proof of Address (copy of the tenancy agreement)
- Credit report
- Last 3 pay slips
- Recent bank statements
- Most recent tax returns
- Floorplan of the apartment /house
Costs associated with buying a property in Portugal
When buying property in Portugal, there are several costs to consider in addition to the purchase price. Here are some of the most common costs:
Property transfer tax (IMT)
This tax is based on the purchase price of the property and can range from 0% to 6% for residential properties. There are 3 main criteria’s that has influence the IMT calculation:
- Urban property vs. rural property
- Property is in Mainland vs. islands (Madeira or Azores).
- Primary residency vs secondary home
Stamp duty (IS)
Stamp duty is charged for all documents and arrangements in respect of real estate, including deeds, contracts and mortgages. This tax is based on the purchase price of the property and is typically 0.8% for residential properties.
Legal fees
It’s important to hire a lawyer to review the purchase contract and ensure that all legal requirements are met. Legal fees can range from 1% to 2% of the purchase price.
Notary fees
Notary fees are charged for the services of a notary public, who is responsible for verifying the legality of the transaction. Notary fees can range from 0.5% to 1% of the purchase price.
Registration fees
These fees are charged for registering the property transfer with the Land Registry. Registration fees can range from 0.02% to 0.5% of the purchase price.
Real estate agent fees
If you use a real estate agent to help you find a property, their fees will typically be around 5% of the purchase price.
Cost details for a property purchase price of €350,000
| Costs | |
| Property transfer tax – IMT (8%) | 15,438€ |
| Stamp duty (0,8%) | 2,800€ |
| Notary fees | 1,000€ |
| Registration fees | 250€ |
| Legal fees | 2,500€ |
| Total Costs | 21,988€ |
*IMT calculation: (350.000,00€ x 8%) – 12.562,06€ = 15.437,94€
Why to work with a mortgage broker for buying property in Portugal?
Access to a wider range of products
different lenders, including those that may not be available to the general public. This can help you find a mortgage product that best suits your specific needs and financial situation.
Expert advice and guidance
A mortgage broker can provide you with expert advice and guidance throughout the mortgage process, from helping you understand the different types of mortgages available to you, to helping you find the best mortgage rates and terms for your situation.
Time-saving
A mortgage broker can save you time by doing the research and shopping around for you, allowing you to focus on other important aspects of your life.
Understanding Foreign Clients
Mortgage brokers who specialize in working with international clients, like those purchasing property in Portugal, possess a deep understanding of the unique challenges and considerations that arise in such situations.
Negotiating power and better terms
Mortgage brokers have negotiating power with lenders, which can help you get better mortgage rates and terms than if you were to go to the lender directly.
Personalized service
A mortgage broker can provide you with personalized service and attention, helping you navigate the often complicated mortgage process and answering any questions or concerns you may have along the way.
No additional costs
In Portugal, mortgage brokers are typically compensated by the lending institutions they work with.
This means that as a borrower, you generally do not have to pay any additional fees or charges for their services.
Why trust Portugal Residency Advisors for your investment
Local Expertise
We know Portugal. Due to our extensive local knowledge, we believe that concentrating our services in a single country destination is the best way to give you the most thorough and useful information.
Holistic Approach
One single channel of communication for the entire process. We provide you with a comprehensive service that covers all aspects of your move, from identifying the ideal residency visa to finding your new home or helping you to settle.
Transparent Service
We recommend what’s best for you based on an extensive process experience that saves time and money to clients. Our pricing is clear and competitive, and we don’t sell services that make us more money.
Simple Process
Technology plays a very important role in our company. We minimize our clients’ involvement in paperwork. We are customers ourselves and we know how to serve you.
Frequently asked questions about How to apply for a mortgage in Portugal as a foreigner
Can foreigners apply for a mortgage in Portugal?
Yes, foreigners can apply for a mortgage in Portugal. The process is open to both residents and non-residents.
What are the general requirements for applying for a mortgage in Portugal as a foreigner?
The specific requirements may vary between banks, but generally, you will need: A valid passport, proof of income, proof of residence, a Portuguese fiscal number (NIF).
Can I apply for a mortgage in Portugal before moving there?
Yes, it is possible to apply for a mortgage before moving to Portugal. Many banks offer online application processes that allow you to initiate the mortgage application remotely or in alternative you can choose to work with a mortgage broker.
How much can I borrow for a mortgage in Portugal?
The amount you can borrow depends on several factors, including your income, creditworthiness, property value, and the loan-to-value ratio (LTV) set by the bank. Typically, banks may lend up to 80% of the property’s value for non-residents and up to 90% for residents.
What is the minimum down payment required for a mortgage in Portugal?
The minimum down payment requirement is usually around 20% of the property value for non-residents. However, this may vary depending on the bank and the specific circumstances of the borrower.
Is it advisable to use a mortgage broker when applying for a mortgage in Portugal?
Using a mortgage broker can be beneficial, especially for foreigners navigating the Portuguese mortgage market. A broker can help you find suitable loan options, negotiate terms on your behalf, and guide you through the application process.
Can I get a mortgage in Portugal if I am self-employed?
Yes, self-employed individuals can apply for a mortgage in Portugal.
