Interest rate, insurance, commissions and taxes. Once you have found the house of your dreams at the best price for your wallet, there are a number of expenses you should consider during the process to determine whether or not this is the right choice for you. If you are thinking about buying a property it is important that you know all the costs that await you and do the math so as not to be caught unawares during the process. Get to know them.
1. Interest rate
In a simplistic way, it can be said that the interest is the price of money, that is, the interest rate is the amount that the bank charges you for lending that amount, according to information posted on the Customer Portal Bank officer. This rate is composed by the index (Example: six months) and the spread. The interest rate can be fixed or variable. If you choose to borrow a fixed rate mortgage, it will remain unchanged for the contracted term. However, if you choose the variable rate, the monthly amount will vary depending on the evolution of – the reference for credits in Portugal. By choosing the variable rate, you can choose the term, with the most common being three and six months. This means that if you choose the three months, the value of the fee (and the monthly installment) will be reviewed every three months. In this case, if the interest rate goes up, the monthly installment increases, but if you go down you will pay less.
As a rule, in fixed-rate housing loans, the interest rate will be higher than the interest on variable rate loans, since the client is paying more not to live in the uncertainty of the oscillation of the monthly installment. The fixed interest rate can protect the client when the is high, as happened when in October 2008 the reference rate to three months reached its highest ever: 5.291%. However, it does not allow the customer to enjoy the descents of this indexer. To get a sense, in October 2014 the was situated at 0.082%. For more information on consult the website.
Example of influence on the provision:
The example takes into account a mortgage loan of 100 thousand euros, payable in 30 years and with a spread of 1.5%. In April 2003, the three-month was 2.5% (TAN – Nominal Annual Rate – 4%), and the provision was 477 euros per month. In October 2006, the reference rate was 3.5% (TAN – 5%) and the benefit was 537 euros per month. In January 2008, was at 4.5% (TAN 6%) and the installment was 600 euros.
The rates on mortgage loans
The comparison of housing loan proposals should not only be based on the interest rate, but should take into account all their costs. To do this, you should be well aware of the fees that will be presented to you in the FIN (Standardized Information Sheet).
TAN. The Annual Nominal Rate includes the reference rate plus the applied spread.
TAE . The Annual Effective Rate includes the total costs of the loan and includes the , the spread, insurance premiums contracted and other expenses, for example, the opening of proceedings, property valuation or processing of benefits. Taxes are not considered at this rate.
TAER. If you contract other financial products or services as a counterpart to have a bonus on the spread, you should analyze the Annual Effective Annual Rate, which already incorporates the costs associated with these products purchased by option.
2. Compulsory insurance
If you borrow money from the bank to buy a home, the institution will apply for life insurance in which the bank is the beneficiary. This insurance aims to ensure that the insurer pays the debt to the bank if the borrower dies or becomes invalid. In addition to this insurance, the bank also requires multi-hazard insurance to protect the home and the damages it may suffer. This insurance must cover at least the risk of fire.
It is not mandatory to hire these insurance in the bank where you will make the mortgage loan, as long as the policies contemplate the minimum coverage required for the conclusion of the credit agreement. However, it is common for banks to offer a reduction in the spread with the counterpart of subscribing the necessary insurance in the bank. It may be advantageous, however, to analyze TAER in order to understand the real costs and to analyze the impact of the insurance premium on the total cost of credit. This information should be included in the Standardized Information Sheet (FIN).
Apart from the interest rate and compulsory insurance, there are other costs that are borne by those who make a mortgage loan. Here are some, according to information from the Portuguese Association of Banks.
Dossier Commission: It may also be called an opening or study committee. Whatever the name, it includes the costs of credit preparation and analysis. The amount varies from bank to bank and, as a rule, is influenced by the valuation value of the property.
Evaluation Committee: Whenever you resort to a mortgage loan, the property will be the subject of an assessment, made by a company, that will serve to determine what the property value in the real estate market. It is this amount that will set the amount that the bank is available to lend. For this evaluation, the client pays a commission.
Management fee : As a rule, this commission covers the cost of the benefits process. As a general rule, the amount payable corresponds to a fixed amount.
Depreciation commission: If you want to partially or totally amortize the mortgage loan, you may be charged a depreciation commission (or fee). The Law establishes that this commission may not exceed 0.5% of the capital amortized in financing contracted at a variable rate and 2% in the case of a fixed rate.
4. Payments to conservatories or notary offices
Provisional and definitive registrations
When applying for a bank loan to buy a house, two provisional registers – transmission and mortgage – are required before writing. This will safeguard the interests of both parties, namely, who will buy the house, so as not to run the risk of being overtaken by other requests, more advantageous to the seller, that may affect the same property.
According to information provided by the Institute of Registries and Notaries, these provisional registers are valid for six months. After this period, if the registration is not required to be definitively converted, its validity will expire. It should be noted that if the contract is made through the Casa Pronta Service, there is no place for these provisional registrations.
After the deed of purchase and sale and mortgage, the bank will convert the provisional records into definitive. For these services rendered in the Land Registration Conservatories are emoluments.
IMT (Municipal Tax on Real Estate Transmission)
Once the date of execution of the definitive deed has been completed, it is necessary to proceed with the payment of the Municipal Tax on Onerous Transmissions of Real Estate. This tax applies whenever there is a change of owners of a property and there is exchange of money. That is, if the transmission is free (inheritance or offer, for example), there is no place for IMT. See IMT rates here.
IMI (Municipal Tax on Taxes)
This tax is levied on the property tax value of real estate located on Portuguese land and reverts to the municipalities where they are located. They are, moreover, the municipal councils that decide what the rates to apply, within the interval stipulated by the Code of the Municipal Tax on Properties. This tax is paid annually.
The year 2015 provides for changes in this tax. The safeguard clause will cease to exist, which means an increase for all properties that have been reevaluated between 2011 and 2012. On the other hand, more families will be exempt from paying this tax, since the gross income ceiling to 2.3 times the annual value of the IAS, that is, 15,295 euros.
This is another cost to consider in the home buying process. It is a tax that is settled at the time of writing and that focuses on the acquisition / deed value of the property and on the value of the loan made available by the bank. It has a rate of 0.8%. If the property is donated is still subject to Stamp Tax at the rate of 10%, which makes a final rate of 10.8%. The exception to this rule is the donations of real estate effected between united de facto, spouses, descendants or ascendants. In these cases the applicable rate remains 0.8%.
Interest on loans granted for acquisition, construction, or self-housing (permanent or secondary) is exempt from Stamp Duty.