How to make an early repayment of my home loan?

Home loan: What is early repayment?

Early amortization refers to the settlement of a debt, before the end of the contract. In other words, if you have a home loan and consider paying off the loan amount to the bank before the scheduled time, this process is called amortization.

You can make an early repayment of the mortgage loan partially or in full. That is, you can reimburse the total amount of the financing to the bank, but you can also repay a portion of it, only part of the outstanding capital, whenever you see fit.

If you want to partially repay an amount, you should do so at the time of settling the monthly installment, but informing your bank with 7 days' notice; and if you want to fully repay the credit, inform them with 10 days' notice.

After the notice, you should receive information from the bank about the impact of amortizing your mortgage as soon as possible, on paper or another lasting medium in written form.

What are the advantages and disadvantages of amortizing?

To pay off your home loan early has the main advantage of ending the debt, which means one less monthly installment in the family budget.

Furthermore, since the monthly payment is composed of the loan amount amortization and the interest on the outstanding balance, by amortizing early you end up paying less interest. This is because initially you pay more interest on the loan, which decreases over the years as you repay the credit. In other words, at the end of the loan, you essentially only pay the amortization value of the outstanding balance. Therefore, by partially amortizing the home loan, you are reducing the outstanding balance and the respective interest to be paid on that amount.

What brings another advantage: reducing the capital owed can also reduce the value of the life insurance associated with the credit. In this way, it causes you to lower your effort rate, that is, the amount of income received directed towards credit payments.

As a disadvantage of paying off the credit early is the fact that you have to provide capital to reduce the amount owed. Along with that, you should also know that paying off the credit early involves paying a commission.

Is there a cost for making an early repayment of the mortgage?

Making an early repayment of the housing credit may incur costs, which vary depending on the type of interest rate contracted. It may be necessary to pay a commission, whether you partially or fully amortize the outstanding capital.

The commission amount to be applied is, at most:

• 0.5% of the capital refunded in the case of a variable interest rate;
• 2% of the repaid capital, in the case of a fixed interest rate.

However, in certain situations, it is possible to be exempt from paying this early repayment fee or to have a lower fee than the maximum limit defined.

According to the Bank of Portugal, a borrower is exempt from the application of this fee in cases of:

• Death;
• Unemployment;
• Professional relocation.

In 2023, the rules are different.

Due to the current context of rising interest rates, in 2023 the rules regarding early repayment commission for housing credit are different.

Until December 2023, the temporary suspension is in force of the requirement for the early repayment commission of the housing loan.

The aim of this Government measure is to encourage borrowers to repay the capital owed to banks without incurring any costs in the process.

With this suspension, it is also easier to proceed with housing credit transfers between banks. This is because, in these cases, the early repayment fee was also applied, limiting families' ability to proceed.

So, this year moving forward with early repayment or a transfer of the mortgage credit becomes less costly. If you are considering moving forward with one of these processes, a credit intermediary Savings in One Minute Poupança no Minuto can help you , mediating with banks, and assisting with a quick, assertive, and free response.