How to Get a Mortgage in Portugal

Before diving into the property market in Portugal, it's crucial to sort out your financial arrangements. One of the first things you should consider is getting a mortgage.

This guide will walk you through when to start thinking about a mortgage in Portugal, what documents you'll need, and what criteria you need to meet to get financing for a property purchase. We'll look at variable-rate mortgages, fixed-rate mortgages, mortgage-related fees, and which Portuguese banks offer mortgages.

Taking Out a Mortgage in Portugal: An Overview

Portugal has earned an exceptional reputation for its hospitality towards expats. The conditions for obtaining a mortgage are pretty straightforward, making mortgages a popular choice for financing property investments in Portugal. Both residents and non-residents can access mortgage options from Portuguese banks.

The maximum one can borrow depends on the loan-to-value (LTV) ratio, the relationship between the loan amount, and the value of the pledged property as collateral.

As of when this article was written, variable mortgage rates in Portugal start at 3.3 percent per year based on a 30 percent loan-to-value ratio. Rates may increase if more credit is required, say at a 60 or 70 percent loan-to-value ratio. On the other hand, fixed rates are available at 4.1 percent for up to five years based on LTV ratios of up to 70 percent.

You may consider taking out a loan or an additional mortgage on a property you own in another country to finance your purchase in Portugal. However, conditions in Portugal have improved significantly over the years, and lenders are increasingly interested in providing foreigners with lending solutions.

Benefits of taking out mortgage loans

The main advantage of taking out a mortgage in Portugal is that the lender will conduct legal checks on the property owners and arrange for a valuation.

Another benefit is that if you choose to rent your property, your rental income in euros could offset or cover your mortgage payments, also in euros, alleviating any currency risk. This will not be the case if you use non-euro mortgage facilities abroad or get a mortgage elsewhere, as you could face foreign currency risks.

Additional benefits of getting a mortgage in Portugal include:

Low mortgage rates
Portuguese banks offer mortgages to non-resident foreigners
Properties bought on credit can be rented out without restrictions
Mortgage installment rates are typically low

At what stage should I apply for a mortgage in Portugal?

Starting your mortgage process early, even before deciding on the type of property to buy, is highly recommended. This approach helps you understand what you can afford, how much credit you can access, and you can start to familiarize yourself with the Portugal mortgage rates.

As a result, you can streamline your property search and make quicker decisions on pricing with the seller. Starting early also makes you a serious buyer, potentially helping you negotiate a better property price.

Comparing Portuguese mortgages from different banks

Begin by comparing mortgages across various banks. Over 15 banks in Portugal offer different mortgage loans and credits for house purchases. Some of these include BBVA, Santander, Bankinter, Banco Best, and Banco CTT.

Each bank has different criteria, and you might not always get the most suitable loan or the best deal available. Furthermore, language barriers might pose challenges.

What types of mortgages are available in Portugal?

Portugal offers a range of mortgage types to suit different needs.

Fixed-rate mortgages

A fixed-rate mortgage ensures borrowers pay a constant rate for a specified period. This type of mortgage protects against changes in the European base rate. The rate is typically agreed upon with the financial institution when applying for financing.

Variable-rate mortgage

A variable-rate mortgage means the interest rates on your monthly payments change based on the indexer (usually the Euribor for housing loans). With variable-rate mortgages, monthly payments are often revised every six months according to the Euribor rates.

Mortgage in Portugal for retirees

Retirees in Portugal can also secure a mortgage, provided they have a regular pension income. Arranging a guarantor can also be an option, which could be beneficial in terms of inheritance tax if they are part-owners of the property.

The regular pension income will be assessed by a mortgage broker, to see if this income could meet the estimated monthly mortgage repayment.

See: How to Retire in Portugal: A Complete Guide

Mortgage in Portugal for businesses

If you're planning to buy a commercial property, such as a restaurant or shop, you can still get financing. Typically, the maximum mortgage is about 50 percent of the purchase price (or the valuation, if it's lower).

How much do I need to deposit?

Non-residents usually need a minimum deposit at least 30 percent of the purchase price for a Portuguese mortgage. This is because financial institutions generally provide between 60 percent to 70 percent of the valuation price in credit.

Mortgage Conditions

Interest rate: Euribor is the foundational interest rate for Portuguese home loans, to which the bank adds its own specific margins.
Mortgage tenure: For non-residents in Portugal, the usual mortgage term ranges from 25 to 30 years.
Lending criteria: Various aspects of your financial health, such as your current income, earning capacity, existing debts, and employment history, are considered when assessing your eligibility. The bank's property valuation is another critical factor in this evaluation.
Insurance: A mortgage loan typically requires establishing a life insurance policy. In certain circumstances, banks may additionally demand that you secure home insurance.

Cost of purchasing a house in Portugal

Here are some associated costs with purchasing a house in Portugal:

Property Tax (IMT): This property tax can range between 2 percent and 8 percent of the property value.

Stamp Duty Tax (IMI): This property purchase tax is usually set at 0.8 percent of the property's price.

Notary, registry, and tax office fees: Property deed fees typically total around €1,200.

Legal fees: These fees are generally estimated to be around €1,800.

Cost of taking out a mortgage in Portugal

Application fee: A fixed fee of €290 typically applies for mortgage applications.

Bank valuation fee: There is also a fixed bank valuation fee, commonly €280.

Stamp Duty Tax (IMI): This tax is set at 0.6 percent of the total mortgage amount.

Notary, registry, and tax office fees: The costs related to the property and mortgage deeds can often amount to around €1,200.

How to Apply for a Mortgage: A Step-by-Step Guide

Navigating a mortgage can be complex, but following these steps can make it more manageable:

1. Initial assessment

Start by contacting your bank or mortgage broker for a preliminary analysis or no-obligation estimate. This is the first step in understanding what you can afford and the types of mortgages available to you.

2. Submit the application form and necessary documents

If the initial assessment is favorable and you decide to proceed, you'll receive a comprehensive mortgage quote typically within 24-48 hours. Remember that a fee might be associated with preparing this quote. Once you've reviewed the quote, complete the relevant application form and submit all necessary supporting documents.

3. Formal offer

After submitting the application and documentation, the lender will review your application. If it's approved, they will extend a formal mortgage offer. Your mortgage broker will confirm the offer details and can also assist with the next steps in the process.

4. Valuation of property

Upon receiving the formal mortgage offer, the bank will conduct a full valuation report of the property. As long as the valuation is at least equal to the agreed-upon purchase price and there are no legal concerns, the details for the completion of the property purchase can be confirmed.

5. Arrangement of completion of sale

You must have the funds for the property purchase available and transferred to the appropriate account prior to the completion date. Once you've confirmed that the funds are available, the mortgage lender will continue with the mortgage application, and a completion date will be scheduled.

6. Completion of sale

Finally, the Portuguese mortgage lender will organize the monthly payment amount. When the property deeds and mortgage deeds are signed in front of the Portuguese Notary, and all associated fees and taxes are paid, you will officially become the property's new owner.

Can a Portugal Golden Visa application be made with a mortgage?

The Portuguese Golden Visa is a sought-after program that offers residency to foreign investors who make a qualifying investment, often in real estate. You can apply for a Portugal Golden Visa with a mortgage, provided the mortgage does not cover the minimum investment amount. This means you must use your capital for the minimum investment amount.

See: Golden Visa Portugal: The Definitive Guide 2023

Documents Required to Get a Mortgage in Portugal

The documentation required for a Portuguese mortgage loan may include:

Copy of passport
Portuguese tax identification number (NIF)
Proof of income
Bank statements (last 60 days of incoming and outgoing cash flow)
Recent utility bill
Recent mortgage statement
Proof of any savings or investment accounts
Bank reference letter
Property details (purchase commitment or sales contract)

See: How To Get a NIF Number in Portugal: Applying For a NIF

The specifics can vary depending on employment status and whether you are employed, self-employed, or retired:

If employed

Last year's tax returns
Last three months' payslips
Reference letter from your employer

If self-employed

(hold a 20 percent or more share in a limited company)

Last year's tax return
Last three months of business bank statements
Three years of company profit & loss and balance sheet

Other income

Confirmation of pension income for the last three months
Copy of tenancy agreement for rental properties
Last three months of statements showing rent received
Copy of investment certificates

Additional documents may be requested depending on the bank's risk assessment.

Portuguese Mortgage Terminologies

When reviewing your Portuguese mortgage contract, keep an eye out for these terms:

TAEG (Effective Annual Rate or EAR): This rate can vary from bank to bank, so compare carefully.
Euribor: This is the basic interest rate used as a reference for setting the interest rate on home loans in Portugal.
MTIC: This is the total amount you will pay for the credit, including both the principal and interest.

Who We Are And How We Can Help

As a renowned global services firm, we specialize in aiding our clients to establish their foothold in Portugal, no matter where they're based in the world. Our dedicated team of experts can assist in creating a seamless transition, helping you obtain a Portuguese bank account and a Tax Identification Number (NIF) entirely remotely.

We can help you open a Portuguese bank account with one of Portugal's leading banks. This will allow your mortgage journey to start much more smoothly. A NIF is also required for purchasing property or signing a contract in Portugal. Simply apply online, and we'll send a NIF straight to your email inbox.

Finally, our real estate division, Goldcrest, can help you acquire a property and will walk you through the entire mortgage process in Portugal.

We are your service provider and your partner in this journey. We leverage our in-depth knowledge of Portuguese processes and requirements to ensure a hassle-free experience for you. With us, you can be confident of getting expert assistance designed to save you time, effort, and resources, thereby making your Portuguese venture a truly rewarding experience.

Additional Resources

The following articles may be a useful resource if you're thinking about taking out a mortgage in Portugal:

Frequently Asked Questions about Mortgages in Portugal

What are the benefits of taking out a Portuguese mortgage for foreigners?

The benefits of a Portuguese mortgage for foreigners include competitive interest rates, the ability to leverage property investment while keeping your capital available for other uses, and the potential to take advantage of property price appreciation. Furthermore, obtaining a mortgage in Portugal can also contribute to securing residency, such as through the Golden Visa program.

Can you get a mortgage in Portugal as a foreigner?

Yes, foreigners can indeed obtain a mortgage in Portugal. Many Portuguese banks and financial institutions offer mortgage products designed specifically for non-residents. However, the process may require additional paperwork and documentation compared to residents.

How much mortgage can I qualify for in Portugal?

The amount you can borrow for a mortgage in Portugal primarily depends on your financial situation, including your income, debts, and employment history. Portuguese banks typically lend up to 80 percent of the property's value for residents and 70 percent for non-residents, although this may vary depending on the individual circumstances.

Mortgage lenders calculate this figure based on a valuation report, the applicant's gross annual salary or monthly income, and whether it is a fixed-rate mortgage or variable-rate mortgage.

What's the age limit for getting a mortgage in Portugal?

The age limit for obtaining a mortgage in Portugal is typically 75-80 years old at the end of the mortgage term. If you are 45 years old now, you could take out a 30-year mortgage. However, these conditions might vary depending on the bank's specific lending criteria.

Can businesses get mortgages in Portugal?

Businesses, especially real estate investment companies, can secure mortgages in Portugal. The conditions, terms, and required documentation may differ from individual mortgages, and it's recommended to consult with a financial advisor or directly with the bank for specific details.