Understanding mortgage spreads in Portugal

What varies from bank to bank is the spread that is added to the Euribor, in other words, the profit margin of the each bank.

Mortgages in Portugal
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3 February 2021, Redaction

What is a mortgage "spread" and what impact does it have on the monthly installments paid to the bank each month in Portugal? The term, mortgage spread, basically refers to the profit the bank obtains by lending you money, normally when you have a variable-rate or mixed mortgage. This is an important component to take into account when applying for a mortgage or any type of credit in Portugal, and is a topic that has led to a "war of spreads" between the main Portuguese banks in recent years. With the help of the experts, let's have a closer look at mortgage spreads in Portugal.

The spread is one of the components of a mortgage in Portugal. In variable rate loans, the Nominal Annual Rate (known as TAN in Portugal), also referred to as the loan rate, is composed of the index and the spread. Basically, this means that the TAN is equal to the index plus the spread.

The most used indexing rate in Portugal is the Euribor, a daily reference rate, published by the European Money Markets Institute, varying between its different maturities. What varies from bank to bank is the spread that is added to the Euribor, let's say it is the profit margin of the institutions in credit operations. Obviously the higher the risk of each transaction, the wider the spread applied by the bank.

In several banks, you can take out additional products, such as insurance, a credit card or salary domiciliation, in order to reduce the spread and therefore reduce your monthly mortgage instalments. For this reason, you should not only focus on the spread when applying for a mortgage in Portugal, but also on all the associated costs, such as annuities, commissions and binding. 

In recent times much has been said about the existence of a "war of spreads" in housing credit in Portugal. The aim of banks is simply to try to attract customers, hence the importance of the topic. In the final stretch of last year BPI and Crédito Agrícola joined the "race" for low spreads, having revised their minimum margins down to 1.1%. Bankinter continues to lead the ranking: the Spanish bank was the first to drop below 1% to 0.95%.

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