They are tighter and mainly affect people over 30 years old. Find out how this will affect you and how you can prepare for better financing conditions.
What are the minimum and maximum ages to apply for a home loan?
According to the note released by the government this year, there are new age limits and deadlines for providing new homes and consumer loans.
| the age of the borrower | Maximum term until April 1, 2022 | Maximum term from April 1, 2022 |
|---|---|---|
| Up to 30 years | 40 years | 40 years |
| Between 30 and 35 years old | 40 years | 37 years |
| More than 35 years | 40 years | 35 years |
Thus, the following was defined:
Age equal to or less than 30 years: it will continue to be able to pay a mortgage or consumer credit with a term of up to 40 years, nothing will change in this regard;
Age over 30 years and equal to or under 35 years: the maximum repayment term of the credit is reduced by 3 years, from 40 to 37 years;
Age over 35 years: This is where the difference is most noticeable. The consumer now has 5 years less to repay the credit, going from 40 to 35 years.
For credits that have more than one holder, the age of the oldest member counts.
What is the purpose of this change in the maximum age for mortgages?
According to the government press release, the goal is clear and intended to protect both consumers and financial institutions.
On the one hand, the State does not want banks to take too great a risk when granting credit. When banks experience large defaults, they are more vulnerable to the impact of adverse external shocks, mainly from the Eurozone. This is therefore intended as a way to strengthen the resilience of the financial sector and to protect the banking sector.
On the other hand, the aim is also to promote access to sustainable finance by consumers. That is, creating conditions that protect citizens from entering into reckless financial obligations, minimizing the risk of default.
If financial institutions exceed these new age limits for home loans, they are required to provide clarification to the regulators. With these changes, Banco de Portugal forecasts that the average term of new home loan contracts will be around 30 years by the end of 2022.
In addition to these changes, the LTV (Loan-To-Value) limits already introduced remain in force, the ratio that corresponds to the percentage to be requested from banks in relation to the value of the property:
LTV ≤ 90%: new housing loans intended for the acquisition or construction of permanent homes;
LTV ≤ 80%: new mortgage loans, mortgage backed loans or equivalent for other purposes;
LTV ≤ 100%: new mortgage loans, loans with mortgage guarantees or equivalent for the acquisition of real estate owned by the institutions themselves and finance leases for real estate.
How do you calculate the maximum age to apply for a home loan?
To find out your maximum age to apply for a home loan, you can use the following formula:
Maximum age
Age of oldest holder + Loan term = Maximum age at end of loan
For example: if the maximum age at the end of the loan is 75 years (as is the case with most banks) and you want to take out a mortgage loan for 30 years, you must do so on your 45th birthday. if, on the other hand, you take out a loan for 55 years, you have to pay it off in 20 years.
What are the consequences of applying for a mortgage against the age limit?
Applying for a mortgage close to the age limit means you have a tighter deadline to pay it off, which has its pros and cons.
On the one hand, paying off the loan in fewer installments means that interest has to be paid over a shorter period of time, reducing the Total Amounted To the Consumer (MTIC). In other words, credit is cheaper and expires faster, which turns out to be the most prudent financial decision, when the family budget allows.
However, there are not always conditions for this and families cannot always have a more expressive amount each month to pay the loan. Incidentally, this is one of the main reasons why loans are taken out: to be able to pay in smaller installments, so as not to imply decapitalization and overload the family budget.
How do you get better conditions for mortgage loans?
Getting approval for a mortgage later in life is not impossible. There are some ways you can get more favorable financing terms.
youngest guarantor
Appointing a younger guarantor, who does not reach the age of 70 before the end of the term, helps to balance the age criterion. It is also important that the guarantor has a healthy and stable financial situation.
Have more than one owner
A mortgage loan is more likely to be approved if requested by more than one holder because it guarantees more security. If one of the holders loses the ability to meet the contract financially, whether due to retirement, illness or other unforeseen circumstances, having a second holder provides a more stable situation as the latter can continue to pay the balance.
Continue with a higher input value
If there are financial conditions for this, it is advantageous to advance with a higher entry value. For example, the loan amount is lower, the LTV is lower and the consumer will also have a lower effort ratio.
These are all good indicators of confidence and are in your favor for the bank to grant you a home loan.
The most important factors to take into account when taking out a home loan
If you are considering taking out a mortgage loan, there are other factors to consider to ensure you have access to the best terms.
APR and MTIC
When assessing the conditions of a mortgage loan, do not just consider the interest, but all the costs that the loan entails. Pay attention to the APR (Annual Global Effective Charge Rate) and the MTIC (Total Amount Imputed to the Consumer), which weigh all credit costs.
The APR represents all costs as an annual percentage and the MTIC expresses the total costs over the life of the contract. These values can be found in the FINE (European Standardized Information Sheet) that all financial institutions must make available to the customer.
Fixed rate or variable rate
When taking out a home loan, you will have to choose between a fixed interest rate or a variable interest rate (or even a mixed interest rate).
In the first case, you always pay the same fixed amount every month, regardless of market fluctuations. This way you always know how much you are going to pay and you will not be faced with any surprises. However, this certainty has a price: fixed interest is usually higher.
In the second case, on the other hand, the monthly fee you pay will depend on the evolution of the variable interest rate, which may rise or fall over the course of the loan – depending, among other things, on inflation.
There is also a third possibility, where you can define a period of application with a fixed rate, followed by a period in which the rate is variable, the so-called mixed rate.
Associated mandatory products
Most banks require you to subscribe to certain products, such as life insurance. When this happens, the financial institution can reduce the spread associated with the loan. In this way, the bank guarantees that it does not run the risk of default if the customer has a serious health problem.
Of course, this entails an additional expense, which is paid independently of the mortgage loan, but which can compensate if it brings contractual benefits – in addition to the fact that you are not obliged to take out the products with the bank itself, but with any other entity offering better terms.
Euribor term
When taking out a home loan, you will be faced with the choice of the duration of the Euribor. The most common installments are 3, 6 and 12 months, when the interest on the loan is revised.
Keep in mind that the shorter maturities (3 and 6 months) have lower values, but also react more quickly to fluctuations (down or up). On the other hand, the Euribor with a longer term (12 months) guarantees more stable but higher monthly costs.
Fees charged by the bank
These types of costs can easily be overlooked when taking out a home loan, but it is important to keep them in mind.
The bank may charge certain commissions that are directly related to a specific service or action it provides, such as opening commissions or commissions related to the early repayment of the loan. So in order to be able to take into account the actual costs that you will have with the credit, this is a factor that you should not ignore.
Compare the range of home loans
Is it possible to get a mortgage with 100% financing?
Yes, you can, but only if you buy a home from the bank.
What documents are required to take out a home loan?
In general, an identification document, the latest IRS tax return and settlement slip, a copy of the last 3 pay slips, the employer’s statement and a map of the property and location are required. Depending on the financial entity or the specific situation of the consumer, other documents may be required.
Do I have to take out life insurance with the bank where I take out the loan?
Not. The consumer has the right to choose the life insurance policy they deem most appropriate, in any entity.
Can I transfer the mortgage to another bank?
Yes, you can, provided you notify the bank 10 working days in advance.
Can a guarantor cease to exist?
Yes, but it must be replaced with another one and the bank must agree to the replacement.
Can I get two home loans?
Yes, you can, and for this the proposal for the purchase of a second home or the purchase of a rental home is analyzed.
Can the bank refuse me a home loan?
Yup. Like any other contract, the home loan is a free agreement between the parties and the bank is not obliged to grant the credit.
How much time do I have to think before making a decision?
The consumer is entitled to a cooling-off period before entering into a credit agreement. Incidentally, you cannot accept a proposal before 7 days have passed, counting from the date on which the proposal was presented to the customer.
final conclusions
In short, buying a home is a defining moment in every consumer’s life, and when it is a decision made later in life, there are additional challenges.
These new rules regarding the maximum age for mortgage loans add a new factor to an equation with a favorable and stable professional situation, an effort percentage below 30% and of course finding the right home.
In summary, keep this idea in mind: the older you are, the shorter the term of the mortgage loan you can take out.
