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Mortgage loans: Nine tips for those who are thinking about buying a house

The home buying process can be a real headache. Between finding the right deal and all the necessary bureaucracy, it is essential that consumers are informed to ensure they make the best choice.

To help answer various questions, DECO Proteste has gathered nine tips that help to analyze bank proposals and explain what care should be taken. Take note:

  1. Should I go ahead with the home purchase? - "Start by analyzing the family's financial situation, the expected developments (for example, if the family will increase) and income stability (such as the type of relationship with the employer). If you have very unstable budgets, it is not advisable to take out a home loan, as you may not find alternatives to fulfill your obligations to the bank";
  2. Is it worth consulting several banks? - "Yes. It is natural that you immediately consult your bank, and you may find better conditions and facilities for accessing financing there. But be sure to compare offers and negotiate. If you find better offers in the competition, be sure to compare your bank with them. You can almost always get a positive response. Contrary to what happened in recent years, banks are now more willing to grant credit, so campaigns to attract new customers are emerging and the conditions offered are Do not forget that the chosen bank will tend to require you to be involved, through the opening of an account in that institution and eventual subscription of products, in order to subsidize the spread";
  3. What is a good spread for home loans? - "The average spreads (bank's profit margin) currently practiced are below 2%, and it is no longer difficult to obtain values ​​below 1.5%. There are even some that offer a little less, especially when the loan amount is considerably lower than the value of the property, and it is now possible to contract mortgage loans with spreads of less than 1%";
  4. Do I accept subscriptions to other products and services? - "If nothing prevents you from subscribing to some banking products or services, such as insurance, paying bills for essential services by direct debit or home pay, consider this option, as it allows you to reduce the contracted spread. As an instrument to compare different credit proposals , always use the Global Effective Annual Charge Rate (APR). The lower it is, the cheaper the credit. In the face of offers to subscribe for products and services from the bank, or from the insurance company associated with it, reject those that represent an increase unjustified expenses in your family budget. Financial investments with risk or credit protection insurance are not a good option";
  5. What is the European Standard Information Sheet – FINE? - All banks are required to issue, in each simulation, a standardized European information sheet, or FINE. It is a document that summarizes all the costs of your credit: commissions, installments, taxes and any contracted products, such as insurance. It also allows you to know how much your benefit will be if Euribor rises to the maximum value it has had in the last 20 years. Do not neglect this information: if it is true that it is not expected that there will be an increase in the Euribor of this size in the coming years to the maximum value it has already reached, do not forget that a mortgage loan is a commitment for several years (more than 30 ) and, therefore, it must consider whether it will be able to support the payment of the credit if the Euribor rises to these values. Also remember that owning a home requires you to bear other regular costs, which must be taken into account in your monthly budget. This is the case with life insurance for loan holders, home insurance (both can be taken out inside or outside the bank), condominium quota and municipal property tax (IMI). At the time of acquisition, you will have to pay stamp duty and IMT, as well as registrations and deed";
  6. Euribor rates for 3, 6 or 12 months? - "Banks add the spread to a reference index to calculate the installment to be charged to housing credit customers, in the case of variable rate contracts. Indexing the loan to Euribor at 3 months is a practice that has fallen into disuse in recent years. Do not be surprised, therefore, if the proposals presented to you provide for indexation to Euribor at 6 months or 12 months, the most common practice these days. This means that the rate on which the calculation of your The installment is reviewed every six or 12 months, depending on the term chosen. But don't be too concerned with the choice of index. In a longer term, as with mortgage loans, the differences tend to blur";
  7. TAN or APR: which should I check? - "The nominal annual rate (TAN) only shows the cost of interest. It is the variable that weighs the most in the set of loan charges, but there are others, such as initial commissions or insurance, for example. at the annual global effective interest rate (APR) you may have an instrument that will allow you to assess the real cost of the loan. This is also the right indicator to compare different credit proposals from the same institution or from different institutions. only for the value of the simulated installment, as a lower amount can hide higher insurance charges or commissions. The best way to compare loans is through the APR"
  8. Do I have to give a down payment for the purchase of the property? - "Yes. Banks do not finance the entire value of the house. Since 2018, following a recommendation from the Bank of Portugal, the amount of financing cannot exceed 90% of the value of the house, except for bank properties. to finance more than 80% of the property's value. If you can still borrow less money, you typically get a lower spread. But be careful: this is not the only value you need to have when buying a home. Count on a nest egg strong enough to support the expenses with the deed and registration of the housing (they are cheaper at the Casa Pronta counter), with the stamp duty and the municipal tax on the onerous transfers of real estate (IMT ). For example, for a loan of 100 thousand euros for 20 years, for a house bought for 125 thousand euros, it would be necessary to pay 1600 euros as stamp duty, 751 euros at the Casa Pronta branch and still 633.38 euros to settle the IMT";
  9. Fixed or variable rate? - "As a general rule, the fixed rate is not the most affordable financial option. The variable rates (indexed to Euribor) continue to be the cheapest solution, despite the rise in Euribor that has been occurring. However, if you are totally averse to the instability of a variable rate and prefer to pay exactly the same amount every month, know that there is already a growing number of banks offering contracts with fixed rates for various terms, including even the entire credit. During this period, any fluctuation in Euribor will not be reflected in the installment, which can be useful if the rate suddenly shoots up. But in the meantime, it is paying a much higher rate than that charged in contracts indexed to Euribor. We simulate a monthly installment for a loan of 200 thousand euros over 30 years. With a fixed rate, it supports, each month, almost 200 euros more than what you would pay with a variable rate. After a year, you will have paid around 2300 euros more. Of course, these values ​​depend on the evolution of Euribor. And in 30 years anything can happen. It is possible that, in a scenario of a very significant rise in Euribor, the variable rate installment ends up becoming more expensive and, then, you can achieve considerable savings if you have a fixed rate credit. But you will only know if you actually paid off at the end of the loan. Not having a crystal ball that allows you to guess the evolution of Euribor, opt for a fixed rate if you value the security of a payment that does not vary over the life of the loan".

Font: Notícias ao Minuto



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