House sales are booming in Portugal, already surpassing the figures for 2019. And with family savings on the rise, interest rates down and favorable conditions for bank loans, the housing loan race is taking hold in the country. From then on, there's a monthly payment to make to the bank. But there's another way to pay off your home loan: by amortizing it. How does it work? We'll tell you all about it.
First of all, it's important to know that amortizing a home loan means paying off the amount owed - in full or in part - before the end of the contract. But this operation is not without its costs and there are several details to take into account. "The key question is whether the reduction in the monthly payment is worth the amortization costs. Only by doing the math can you come to a conclusion."
As far as the mortgage amortization commission is concerned, it varies from bank to bank and is influenced by the contracted interest rate, whether fixed or variable.
But even so, there are maximum ceilings for each:
- Contracts with a variable interest rate, the mortgage amortization fee cannot exceed 0.5% of the capital repaid;
- Contracts with a fixed interest rate, the mortgage amortization fee cannot exceed 2% of the capital repaid.
There are also some cases in which the home loan commission is waived, such as in the event of unemployment, professional relocation or the death of one of the contract holders.
Amortizing home loans: how to do it and what are the advantages?
Once you have decided to repay your mortgage, it is essential that you notify the bank where you took out the loan of your intention to do so. The deadlines may vary depending on the bank, but you can check your contract to see how much notice is required.
Another important point is to pay attention to the details of the home loan contract:
Partial early repayment: this can be done at any time, with no minimum amount to be repaid. All you have to do is notify the bank in question and the repayment must coincide with the monthly installment payment date.
Total early repayment: here there are two different deadlines:
- If you want to repay your loan in full, you must notify your bank in advance and the payment must coincide with the monthly installment date.
If the repayment is due to the sale of the house, you'll have to give the bank prior notice so that the mortgage cancellation document can be issued - i.e. the document that extinguishes the credit debt - and then presented at the deed.
If the amortization stems from the sale of the house, you'll have to give the bank prior notice so that the mortgage cancellation document can be issued - i.e. the document that extinguishes the credit debt - and then presented at the deed.
And what are the advantages of amortizing your mortgage? Here are a few:
- Peace of mind: having fewer debts to the bank, as a general rule, is more emotionally and financially reassuring;
- Less dependence: by repaying the mortgage, it is also possible to reduce the loan and request a reduction in the term of the debt;
Home loan amortization: is it worth it?
When deciding whether to repay your mortgage, it's very important to do the math (well). The key question before deciding is whether the reduction in monthly payments is worth the amortization costs. In most cases the answer is yes, but it's only justified for large amounts. Of course, each case is different. And if you're thinking of taking out a new loan, it's best to compare the offers on the market.
There are already several simulation options that allow you to see all the costs and benefits of repaying your mortgage. In the end, the decision will always be yours.
Source: Idealista/news