The financial product with the greatest relevance in the life of most Portuguese families is the credit for housing purchase. The importance of this type of financing is assumed to be too significant, not only because it represents one of the financial commitments with greater expression but also because of the reduced margin of maneuver to be renegotiated.
Unfortunately, the weak dynamism of the rental market in the past has pushed many households into the banks’ drafts, and it is now very difficult to meet the monthly installments. Therefore, it is necessary to know the general characteristics of the Housing Credit, which will be described here.
Purpose of Mortgage
The Granting of Mortgage Loans is regulated by Decree-Law no. 349/98, of November 11, which specifies the concession scheme, With regard to the granting of Housing Credit under the Bonus Scheme and Bonus Scheme, these have been ceased to be possible since September 30, 2002.
The Housing Credit concession can take on several purposes, being the most known;
- Acquisition or construction of own dwelling;
- Works and improvements
- Acquisition and construction of own housing – acquisition of land and construction of permanent housing.
- Transfer of mortgage loan from another credit institution (ICO).
- Supplementary financing – expenditure on own housing and not covered by the specific housing credit scheme.
- Home Exchange – Acquisition of own housing for clients with Housing Credit in a Banking Institution and who wish to acquire a new home without having sold the current one.
- Intercalary for sign – Financing to signal the purchase of your home, for which you already have an authorized loan.
Types of Benefits
All the Housing Loan concessionaire assumes an obligation for the Client, and the benefit is the object of that obligation, or the amount to be paid at certain intervals to fulfill the financial obligations assumed in a financing agreement. The benefits may be:
- Constants: For loans with variable interest rate, the amount of the benefit does not change during the term of the rate. For a Housing Credit with a 6-month 6-month (6-month Euribor) interest rate, the rate is constant in the 6-month period, and the installment is updated when the indexer is revised.
- Progressive: The installment increases over the term of the Housing Credit, according to the previously stipulated payment plan.
- Mixed: There is a period of growth of the benefit until it becomes constant.
Types of Housing Refund
The Housing Credit has different modalities of reimbursement of benefit, namely:
- Traditional repayment: Repayment of the loan in constant installments of principal and interest in capital and interest, and repayment of capital begins as soon as the first installment. One particularity of this type of repayment is that the repayment of capital is increasing with the passage of time consecutively the interest will be lower;
- Repayment with capital shortage: Repayment of the loan capital occurs on a future date for consecutive periods according to the contractor between the client and the Financial Institution. During the initial period, only repayment of interest will occur, and the installment in this period is less than the following period where repayment of principal and interest of the loan will occur;
- Residual amount or capital allowance: In this mode from the capital is transferred to the end of the loan term, therefore, the loan installments will be smaller except the last installment which will be higher according to the deferred percentage (10 to 20% ).
Always Offer Guarantees
In order for the Mortgage to be granted to the Client, it is necessary to have guarantees capable of responding to the risk of default. In this sense, as a way of guaranteeing the payment of the loan granted, banks require the mortgage in their favor of the property subject to the financing, although, the client may substitute or guarantee another property or a financial product.
To determine the value of the guarantee, the Financial Institution requests the evaluation of the property and matches the risk of the financing, if the result is favorable the guarantee of the property is sufficient otherwise the Institution may propose to the Client a reinforcement of guarantees, requesting a guarantor or pledge.