When amortizing in home credit, how much time can I reduce on the contract?

Are you going to take out a home loan and are lost in doubts? Turn to a credit intermediary and clarify all your questions. The agents of Poupança no Minuto will guide you through all stages of the credit process, for free, and take care of all the paperwork and communication with the banks.  

But notice how early housing credit repayment works now and in what ways it can be implemented.

Amortizing a mortgage: Reduce the installment or the term?

Amortize, that is, deduct a portion of the outstanding balance in the mortgage credit can allow: reduce the amount of monthly installments to be paid, or, if you choose, the repayment term of the credit.

In other words, if you intend to decrease the maturity of the credit by amortizing, and can continue to pay the same monthly installment amount, you can settle an amount that allows you to maintain the same installment. This allows you to keep similar conditions, but finish paying off the credit earlier than agreed.

If you have this possibility, negotiate with your bank to understand how much time you can reduce your contract by, depending on the amount you want to pay off.

Time reduction will always depend on the specific conditions of each loan. But we have provided some examples below, based on different contracts, to understand how it can work in practice.

Commission for early repayment

Note that, as a rule, banks charge a commission for early repayment, which can be:  

• Up to 0.5% of the capital in debt in contracts with a variable rate regime.
• Up to 2% of the remaining contracts' outstanding capital.

However, in 2023 a measure is in force that allows for the exemption of this fee in variable rate contracts, to help Portuguese citizens who wish and are able to pay off this burden, or part of it, now.

The impact of amortizing part of the credit, within the repayment period.

Let's look at some examples to understand the impact of paying off part of the credit on the repayment term.

In a mortgage credit with €200,000 in debt, interest rate of 3.9%, and 360 months repayment term, a borrower currently pays €943.34 monthly. If they amortize €10,000, the remaining debt is €190,000. Keeping the similar installment amount (€942.72), the repayment term reduces to 328 months. Therefore, the credit holder manages to decrease the payment term by 2 years and 8 months.

In a home loan with €250,000 of outstanding capital, an interest rate of 3.75%, and 360 months of repayment, the borrower pays a monthly installment of €1,157.79. By paying off €20,000, the outstanding capital becomes €230,000. To maintain a similar monthly installment (€1,157.31), the borrower can reduce the repayment term by 49 months. Therefore, with these conditions and paying off €20,000, the term is reduced by 4 years and 1 month.

Now considering a home loan with 300,000 euros of due capital, interest rate of 4%, and a repayment term of 360 months, a client pays 1,432.25 euros. By amortizing 50,000 euros of the debt, the outstanding capital decreases to 250,000 euros. Therefore, and keeping the same monthly payment amount (1,432.25 euros), it is possible to reduce the repayment term to 98 months. This corresponds to a reduction of the payment term by 8 years and 2 months. 

Negotiating is the key... And with help it can be easier.

Notice that these cases may not be so linear, and are always dependent on the specific conditions of each bank. You may need to negotiate, but this way you can do it in a more informed and sustained manner.

Or else, it's simple: Resort to a credit intermediary that handles this process for you, at no cost. The agents from Poupança no Minuto can guide you throughout the entire credit process, whether it's for contracting, transferring, or any other related issue.