Home loans are cheaper than ever - how to get a home loan

Home loans are now cheaper than ever. The interest rate implicit in all home loan contracts has been on a downward trend since September 2020 and in April reached a new low: 0.826%. The conditions seem to be right to go ahead with buying a house. But what aspects should we take into account when applying for a new mortgage?

First of all, let's “travel back in time” with the help of the data released by the National Statistics Institute (INE). This interest rate is now 0.121 basis points (bp) lower than the rate in April last year (0.947%) for all contracts signed. And it's 0.247 bp lower than in April 2019 (1.073%). If we look at a ten-year horizon, the difference is even greater: in April 2011, the interest rate on all mortgage contracts was 2.197% - 1.371 bp higher than in April this year. It was in September 2012 that the rate fell below 2% for the first time. The mark below 1% was recorded in February last year.

Interest rates also fell in contracts signed in the last three months, reaching 0.655% in April, according to INE. With regard to house purchase - which is the “most important financing destination for mortgage loans as a whole” - the implicit interest rate for all contracts fell to 0.844%.

This is certainly a factor that weighs heavily when it comes to taking out a mortgage. Now you also need to know what the market offers today, as well as everything you need to move forward. In this article we'll take you through the process step by step.


Current offers

We are seeing a reduction in interest rates on both variable-rate and fixed-rate mortgages. According to the idealista/créditohabitação comparator, we can currently find variable rate loans with spreads starting at 0.95%, and fixed rate loans starting at 1.40%, with bonuses (the most common are salary domiciliation, taking out life insurance or multi-risk insurance).

These conditions show that the banks are in the midst of a commercial war to attract new customers via mortgage loans, which translates into an advantage for those who need financing to buy a house.

In addition, experts expect these advantageous financing conditions to continue in the short to medium term, leading to favorable conditions for buyers.
The keys to giving in to a mortgage

The first thing to bear in mind is that the banks that lend the most are willing to lend up to 90% of the lower of the two amounts: the property's appraised value and the purchase price. You therefore need to have enough savings to cover at least the remaining 10%, not forgetting the taxes and expenses of the operation.

However, the idealista/créditohabitação team would like to point out that “there may be other solutions for loans that don't fit into these ratios and that there are products on the market that help us in the process of changing homes”.

In addition, if you don't have enough savings, you can look for bank-owned properties, which can be financed up to 100% of the purchase price. Another option is to buy a flat-plan property, as you can make monthly payments while the house is under construction, in order to get the minimum amount needed to obtain the loan when the keys are handed over.


Steps and advice when applying for a home loan

There are all kinds of offers on the market, which differ according to factors such as the percentage of financing, the type of house you want to finance, the type of rate, the loan term, the loan commissions..." That's why it's very important to analyze which banks and products fit your needs, explains Miguel Cabrita, head of idealista/créditohabitação in Portugal.

To analyze the market, you can use online comparators and you need to pay attention to all these factors, especially the most basic questions: the best rate, the loan term and the commissions.

Once you've identified several offers that fit your profile, it's a good idea to “request conditions from different entities” in which they specify, always as a guide, the financial conditions of the mortgage and the commissions that the customer will be responsible for. If you request it, the bank is obliged to provide you with a free NIF (European Standardized Information Sheet), the content of which is regulated by the Bank of Portugal, recalls the idealist's credit intermediary. If you're in doubt, it's a good idea to enlist the help of a credit intermediary, who usually has an agreement with most banks, knows the market and can speed up procedures.

Once you have chosen the bank where you want to apply for the loan, you can go directly to present all the documentation (among the documents you will need to present are your ID card, the last tax return and its assessment note, the last three payslips and bank statements). If the client is self-employed, the documentation may vary). See all the documents here.

After submitting the documents, we have to wait for the bank's response, i.e. whether they will grant or refuse the loan. This usually takes about a week, depending on the bank.
"After the evaluation, the bank will issue the approval FINE, i.e. the final offer. This is a document that must contain each and every one of the financial conditions of the contract (amount, number of installments, commissions, review periods...) and will be valid for 30 days, during which time the conditions will be in force, and you will have to respect the minimum period of 7 days for reflection," they explain from idealista/créditohabitação. This offer avoids misunderstandings in verbal negotiations and in some cases leads to the payment of a commission (study commission), even if the client withdraws from the process.

Once the offer has been accepted, it should be borne in mind that if the property you are going to buy has a mortgage, you must apply for a mortgage break at least 10 days in advance. Another issue to bear in mind is that in some areas there may be a right of first refusal, for example from the town hall, which also means that you have to take into account the days until you can get your offer waived.




Source:idealista