Home loans (and other types of loans) are becoming more and more complex, with contracts written in excessively technical language that seems like it’s deliberately difficult for the consumer to understand, so you can’t make a truly informed decision between different banks and compare their mortgage offers.
It’s important when applying for a mortgage to be able to decipher the intractable jargon that is used, but how? It is with this aim in mind that idealista/news has teamed up with DECO, the Portuguese consumer watchdog, to help you navigate the choppy waters of “bankspeak”. Today we are focussing on explaining the so-called ‘solvency analysis’ or ‘credit check’.
Before signing a mortgage contract, the information provided to the consumer should be clear and easy to understand. The use of inaccessible language breeds mistrust and stress. Let’s unravel some of the language used by banks and financial institutions when talking about loans and mortgages, and start with the credit score explained.
What is a credit check?
If you are going to apply for a new loan or try to improve the conditions of your current loan, and particularly one for buying a home, you should first think about whether you’ll be able to pay it back.
The bank or financial institution that is going to grant the mortgage also has a duty to assess whether their client will have sufficient funds to pay their monthly mortgage repayments. This is known as checking the credit score, or carrying out a creditworthiness analysis. In the Portuguese mortgage market, it is called “análise da solvabilidade do devedor” or “avaliação da solvabilidade do devedor”.
This assessment must be carried out before the mortgage is granted and is based on a set of factors and information that the bank may request from the customer.
What banks look at when checking a credit score:
- your age
- financial situation (whether or not you have any debts)
- earnings
- your regular expenditure
If applying for a mortgage in Portugal, the bank will also assess any credit liabilities you may have and their weight in consumer income, namely by consulting databases such as the Credit Liabilities Map of the Central Credit Register (Mapa de Responsabilidades de Crédito da Central de Responsabilidades de Crédito) of the Banco de Portugal, provided that any issues related to personal data protection are safeguarded.
The difference between the value of the property you want to buy and the amount of money you ask for will not be a decisive factor, with the exception of loans for construction work and building new homes.
In the assessment, banks often assume a pessimistic possible future scenario in which a potential drop in the customer’s income, an increase in their expenses or in the interest rate (if it is a variable- or mixed-interest rate loan) having a negative impact on their ability to pay back the loan.
idealista/créditohabitação
idealista, as the largest real estate marketplace in southern Europe, runs a free mortgage comparison site in Portugal, where you can consult their specialised mortgage calculator and see loan offers from all the different Portuguese banks. Finding and financing property for sale in Portugal has never been easier!
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