Have you found the house of your dreams? Then you're already halfway there, now it’s time to choose the best mortgage loan. This is a decision that should be carefully considered, as a mortgage is a long-term commitment.
In this article, we’ll explain what you need to know and do to choose the best mortgage for you.
How to compare two offers and find the best mortgage loan?
When you request a simulation to find the best mortgage, you receive so much information that it can be hard to evaluate and choose the most suitable option. That’s why we’re providing several parameters to help you compare loan proposals:
Request simulations from different banks
Finding the best mortgage means comparing offers from diferent banks. This is essential to compare offers and choose the most suitable one. As the “Casa_PT” study showed, most people consult only their main bank (77.5% of those surveyed), but don’t stop there.
It’s true that some banks require you to open an account and have your salary paid into it, which can be time-consuming and involve changing direct debits and other bureaucratic steps. However, there are alternatives that don’t require this. For example, you can apply for a mortgage with UCI and keep your usual account, from which the monthly instalment will be debited.
So, make sure to thoroughly explore the market during your search to avoid limiting your options.
Keep all ESIS (FINE) documents
When you ask for a mortgage simulation, the bank will provide a European Standardised Information Sheet (ESIS or FINE) — a document that outlines the key characteristics of the loan. This includes the proposed interest rate, spread (if applicable), loan amount, term, and other conditions that affect the total cost.
It’s very important to keep these documents, as they contain all the relevant information that will allow you to assess and compare offers in order to choose the best mortgage for you.
Look beyond the spread
The spread is undeniably an important factor in evaluating a mortgage. But is it the most important? According to the “Casa_PT” study, 42.6% of respondents said that the spread was a decisive factor in their choice. But what exactly is the spread? Simply put, it’s the bank’s margin for lending you money. Many factors influence it, such as the borrower's profile, loan characteristics, and the guarantees provided.
The spread is just one of the costs associated with a mortgage. Understanding this will help you see that it shouldn’t be the only deciding factor. For example, an offer might have a lower spread but include bank fees and other charges that ultimately make it more expensive.
So how can you assess the total cost of a loan proposal? Let’s look at the next point.
Consider the APR (TAEG) and Total Cost (MTIC)
When comparing offers, two key indicators you should always remember are: MTIC and TAEG.
- MTIC stands for Montante Total Imputado ao Consumidor (Total Amount Payable by the Consumer). As the name suggests, this figure tells you the total cost of the loan, including principal, interest, fees, taxes, and other charges. By comparing loans based on this (assuming the loan amount, number of applicants, and type of interest rate are the same), you can identify which option is cheapest overall and therefore the best mortgage.
- TAEG stands for Taxa Anual de Encargos Efetiva Global (Annual Percentage Rate of Charge). More informative than the nominal interest rate (TAN), TAEG includes interest, fees, taxes, insurance, and other products that might be required to lower the spread. The best mortgage for your case may be the one with the lowest TAEG.
Pay attention to additional products
Have you heard of optional tied sales? It’s a common banking practice where the institution offers a lower spread in exchange for contracting other products like credit cards, pension plans (PPR), insurance, etc.
Now imagine that at some point, you want to cancel one of these products because it’s no longer useful or has become a burden. In that case, the mortgage spread may revert to the higher base rate. That’s why it’s important to carefully consider the true benefit of contracting those financial products and the long-term impact they have on your loan.
Focus on the best interest rate for you
“A bird in the hand is worth two in the bush.” It’s a popular Portuguese saying, but it fits perfectly in the context of choosing a mortgage. When deciding on the best interest rate option, consider what matters most to you:
- Variable Rate - Based on the sum of two components: Euribor (the benchmark rate) and the spread. Euribor has several terms, but 3, 6, and 12 months are the most common in loan contracts.
This rate is called “variable” because it fluctuates over time, which also affects the instalment amount. For example, if you choose a 12-month Euribor rate, your payment will be reviewed after one year and may rise or fall depending on current rates.
That means you benefit from a lower short-term interest rate, but you're also exposed to market volatility. And currently, with a lot of uncertainty in the financial markets, choosing a variable rate means being very dependent on market fluctuations and not having any certainty. - Fixed Rate – If you opt for a fixed rate, your monthly payment will remain the same for the entire duration of the loan. This protects you from fluctuations and provides more financial certainty — potentially making it the best mortgage in terms of security.
The fixed rate is set by the lender based on factors such as loan term, amount, loan-to-value ratio, customer profile, and market conditions. - Mixed Rate – This option combines the benefits of both fixed and variable rates. You start with a fixed rate for a set period (e.g. 5 or 10 years) and then switch to a variable rate for the remaining term of the loan.
Explore different loan terms
It’s true that the longer the mortgage term, the lower the monthly instalment. However, it also means paying more interest over the life of the loan. To find the best mortgage, test different scenarios and again analyse the total cost using MTIC and TAEG.
Ideally, you should find a balance between an affordable monthly payment and the total cost of the loan. That is, choose the shortest possible term that still gives you a manageable payment — so you avoid paying more interest than necessary.
Is a guarantor really necessary?
To grant a loan, the bank will require guarantees to ensure repayment. Having a guarantor is one of the most common types, but it’s not mandatory.
Keep in mind that just because one bank requires a guarantor doesn’t mean all of them will — each has its own policy. Consider this when reviewing proposals and remember that asking someone to be a guarantor is a big responsibility with potential long-term consequences.
Finding the best mortgage might not be an easy task, but it’s worth the effort. Don’t settle for the first offer, and don’t assume your current bank has the best deal. You could miss out on better loan conditions and end up paying more.
Take the first step and run your mortgage simulation! Get in touch with us!
