28/09/2021
Mortgage advice for foreign buyers in Portugal
So you have taken the leap of faith and decided to buy that dream house in Portugal. Good call!
Hardly surprising that I agree since I made that same decision a year ago! With such a low interest rate environment in Europe, with mortgages as cheap as they have ever been, taking a mortgage in Portugal to help finance your purchase makes perfect sense!
Firstly, buying a property in Portugal makes perfect sense to me with the quality of lifestyle and climate, attractive NHR taxation scheme for non-Portuguese, overall sense of safety and security, affordable everyday costs and property prices compared to similar European countries. Secondly a mortgage in Portugal makes sense with the current levels of interest rates and with the added benefits that you don’t have to use up all your savings. The finance can help you bridge the funding gap to the property that you want to buy.
Let’s say you have spotted a property near the beach just outside Lisbon, and near the great beaches in Caparica, and it is on the market for 500,000 euros. You are happy to fund half with savings and take a mortgage out for the balance of 250,000 euros. What if I told you that this will cost you 1141 euros per month on a full repayment (amortization in the US) over 25 years, with a conservative effective interest rate of 1.5%. (This rate is just an estimate.)
So what could go wrong! Well quite a lot is the honest answer. Interest rates could go up. Hidden charges on the mortgage. Process takes so long you give up. Communication and bureaucracy with the bank is impossible at times and on top of that you don’t speak Portuguese. But it does not have to be difficult and these risks can be managed. The process can be made simple!
I will state now as an expat, if you are thinking of taking out a mortgage in Portugal then find a broker that you can communicate with easily and that is qualified in Portugal to offer independent mortgage advice. Lets face it, you would do this in your home country, so why not do it in Portugal? In Portugal brokers, similar to most countries, earn commission from the banks when the mortgage funds are released for the house purchase and so they do not charge a fee to their customers for their service.
Taking out a mortgage is undoubtedly the single biggest financial decision that most of us will make. In addition as a foreign buyer of real estate in Portugal you are at a clear information disadvantage. Firstly you do not have the local knowledge of the market and the products. The estate agents and banks have this information. Secondly you do not speak or understand the language. Lets face it, if you are like me, then you have found Portuguese impossible to learn or understand . “Tudo bem” will only take you so far, trust me I have tried! Thirdly an estate agent that is selling a property is acting for the seller and the bank is acting for their shareholders. You need someone fighting in your corner, that let’s be honest, that you understand and can communicate easily with.
An independent mortgage broker can help you to make sure you get the best advice on a mortgage that is suitable for you and your circumstances. In Portugal They do this with:
Analysis of the different mortgage deals offered by banks in Portugal. Your adviser will ensure you get the best deal and do not get blind-sided by any small print or hidden fees.
Choose the banking partner is best for your circumstances and what you need. Especially important in relation to the amount of loan required and when the money is required. Critical that you can get the mortgage funds when you need them!
Detailed discussion on your appetite for risk. What happens if interest rates rise? Historically low yes but if you are like me and lived through 2007/2008 then you are acutely aware that things change rapidly. Your adviser will talk you through the benefits of a fixed rate mortgage and why it can make sense in today’s interest rate environment.
Summary of all associated costs of your purchase and mortgage. So before you agree to buy that property you know will have a clear plan and view of what funds you will need to cover your equity, fees and costs.
My advice keep it simple and have a plan. You are making a big investment in a market outside your comfort zone. Banks in Portugal can make it complicated! A lot can and will go wrong! You probably do not speak the language and have few contacts that can help. Do some research and find a mortgage broker that you can communicate easily with and that you can talk to and trust. Get the expert local information that you need to ensure you can make a confident informed decision about your investment and future home.
