An INE household spending survey in 2015/2016 revealed that almost 32% of Portuguese household spending goes to housing, water, electricity, gas and other fuels. As the financing of the house is one of the costs that weighs most on the budget of Portuguese families who own their own residence, it is crucial to know some strategies to reduce the burden of this burden and therefore to have a cheaper housing loan. .
1) Start with insurance
When mortgaging a mortgage, it is normal for banks to require two life insurances: life insurance and multi-risk insurance (the latter to protect the property). Typically, these are contracted to the bank itself, because if so, the customer receives a bonus in the spread.
However (and many Portuguese people are unaware of this reality), it is possible to take out the insurance associated with the home loan from another insurer other than the financial institution, even after the mortgage loan agreement has already been signed and at any time during its term – since 2009 this has been legally accepted.
To get an idea, you can reduce your insurance costs by more than 50% by transferring them to an insurer offering a more affordable premium. Reducing the burden of this charge will make you have a cheaper home loan because the monthly repayment amount will be reduced.
It is a matter of doing the math and trying to figure out if the bonus you are likely to lose on the spread will be no less advantageous than the amount you can reduce with the insurance transfer. It may not compensate.
2) Spread above 2%? Renegotiate for cheaper housing credit
Currently, as the housing market picks up, many institutions are already spreading below 2%, so anyone who still has a spread on their home loan above this should try to narrow it down.
How? The first step is to go through several simulations with other banks that offer better conditions and use them to try to negotiate with your bank. Then talk to your account manager, because if you are already an old customer with a good track record, it will be much easier to negotiate.
3) Transfer may be the best medicine
Tried to negotiate a spread reduction with your bank and failed? Did you consider moving your life and multi-risk insurance to another insurer, but didn’t the loss of spread subsidy with your bank compensate? The next alternative is to transfer.
Basically there are three situations that should influence you to switch banks: get a lower spread, reduce TAE applied to finance or are over-indebted.
First of all, be aware of the current conditions of the loan you have. Not everything is spread. A home loan is also made up of all products and / or services that have been contracted with it (insurance, credit card, salary domicile). As such, you need to check that it is not, for example, the life insurance that is triggering the monthly installment.
The elements to be analyzed are: the amount still outstanding and the remaining term to repay the loan, the monthly repayment you are currently paying, the spread, the type of interest rate (whether it is fixed or variable), the premium insurance that is paid regularly and, as stated above, which products are associated.
Please note that this change may not come at no cost: when you transfer your loan to another institution you may have to pay your current bank an early repayment commission which, in the case of variable rate loans, is 0.5% on the repaid capital. In fixed rate loans this amount amounts to 2%.
There may also be expenses with new opening fees, appraisal fees, a new deed and consequently notarial fees and solicitation costs.
4) Consolidate (if you have other loans)
Another of the strategies that exist to be able to have a cheaper home loan may be to consolidate, but this will only apply if you have loans other than what you have done for the home (be it the car, the personal loan you have done to remodel home or even the credit card you used to pay for your vacation).
Consolidated credit allows you to aggregate all loans into one, is staying with a single monthly payment can be reduced up to 60%. For example, if your sum of all your installments is 799 dollars, with the consolidation this amount could go up to 479 dollars.
For those with more than one, the question arises: is it more beneficial to transfer the home loan or to consolidate? You have to do the math and compare.
5) Change the term
Finally, there is still an alternative: extend or reduce the term of the loan. Of course, this strategy is dependent on the age of the borrower, but it may be a solution to having a cheaper home loan, the longer the repayment period, the shorter the repayment will be.
However, by extending the term, the credit will become more expensive in its entirety due to the extra interest payments, which may be a disadvantage to note, in addition to extending the debt. In addition, the financial institution may make changes to the spread.
Still, there is an advantage to this option: that the bank cannot charge you commissions because you want to extend the repayment term.
In turn, if the time limit is shortened, the benefit will be higher, but the total amount imputed will be lower.
Because the home loan is a financial liability that will accompany you for most of your life, the more you can reduce its weight in the wallet, to make your home loan cheaper, the better.
In this sense, and by the way of conclusion, it should be emphasized that mortgage loans should be seen not so much as an acquisition of a product, but as a service and as such, it is always necessary to review its conditions and to investigate if in the meantime. no better options emerged. In 20, 30 or 40 years a lot can change. The market fluctuates, the banks adapt and there are times when changing can mean savings of thousands of dollars. It is a matter of being aware.