The cheapest banks to take out mortgage loans

After six years marked by negative rates, Euribor rates are now negotiating close to 2009 values. The 6-month Euribor, for example, currently the rate most offered by banks to contract a mortgage loan, is 2.895% after in June of last year it was still trading at negative values.

In the families' portfolio, this galloping rise in the interest rate is reflected in an exponential increase in the mortgage payment: in a 30-year mortgage loan, indexed to the 6-month Euribor with a spread of 1.2%, which has been revised in january, the rise in interest rates translated into an increase of 144 euros for every 100,000 euros in financing between june and january.

This is a 44% increase in the cost of credit in the space of just six months ( make your simulation here ). And counting on the most recent statements by Christine Lagarde at the World Economic Forum in Davos, this escalation will hardly have new chapters.

For families with mortgage loans and for all those who intend to buy a new house in the coming months using bank credit, the prospects are not the brightest. According to the latest data from the National Institute of Statistics ( INE ), home loan contracts concluded in the last three months registered a record rise of 35 basis points in the interest rate , rising from 2.365% in November to 2.715% in December. It was the biggest ever monthly increase in the interest rate.

Since April, the interest rate on new home loan contracts (carried out three months ago) has already increased by 189 basis points, from 0.83% in March 2022 to 2.715% in December. The main reason for the increase in the cost of mortgage loans is the result of Euribor rates, which have closely followed the constant increases in the key rates for the euro by the ECB since the summer.

Banks, on the contrary, have changed very little in their commercial offer in this matter. According to a consultation of the price list of 11 financial institutions responsible for more than 95% of mortgage loans granted to families, it appears that, on average, the minimum spread practiced is 1%. In March it was 1.08%. And unlike that time, today up to four entities offer spreads below 1%.

Home loan accounts

Contracting a mortgage loan is a long-term commitment, which can last up to 40 years and always involves high amounts. For this reason, it is very important to study the market well and do the math well at all costs involved.

First of all, because a proposal with the lowest spread is not always a sign of the lowest installment or the cheapest credit. This was exactly what was reflected in the simulations carried out this Sunday, January 22nd, with the housing loan simulators of the 11 financial institutions analyzed.

At the door of the banks, a 30-year-old couple “knocked” with an apartment under their eye worth around 200,000 euros, for which they have 50,000 euros available as a down payment. From the bank, they want to ask for simulations of 150 thousand euros to be paid in 30 years, being available to contract a housing loan with a variable rate or a fixed rate.

In the variable rate component, offers are mostly based on the 6-month Euribor rate (2.56%). The only exception is Banco CTT , which associates its proposal with the 3-month Euribor (2.06%), and for this reason presents a lower annual global effective charge rate ( APR ) than the other proposals, which oscillate between 4.4% from Caixa Geral de Depósitos, Crédito Agrícola and Montepio, and 4.97% from União de Créditos Imobiliários (UCI). However, this does not mean that UCI's offer is the worst solution for all customers.

The APR encompasses not only the interest rate and spread , but also all associated borrowing costs such as insurance policies, taxes payable and all bank fees. Thus, it is certain that in credit proposals with the same amount and the same term, the lowest APR represents the cheapest proposal on the market, because it bears the least costs.

However, a more detailed analysis of the conditions of each proposal should not be neglected, since not infrequently, despite the contractual conditions appearing to be the same (the same amount of financing and the same term), there are significant differences with an impact on the final cost of the loan, namely in terms of associated insurance coverage and financial products contracted to reach a certain APR.

As happens when looking for a house, also when “hunting” for the best mortgage loan there are proposals for all tastes and shapes. This includes fixed rate offers, which despite few banks offering this solution, there are proposals that deserve to be evaluated.

According to the market analysis, the APR for a 30-year mortgage loan at a fixed rate varies between 5.4% at Caixa Geral de Depósitos, Millennium bcp and Novobanco, the 5% at Banco BPI ( which has running a campaign that exempts the payment of initial credit commissions – commission for opening a dossier, evaluation and preparation of minutes) and 4.8% from Banco CTT.

According to the simulations collected by ECO, the average APR for a 30-year fixed-rate loan of 150 thousand euros at a fixed rate is 5.2%, while for a mortgage loan with similar characteristics indexed to the 6-month Euribor, the APR is 4 .5%.

It means that today the premium to be paid for peace of mind, for 30 years in relation to the mortgage payment, is less than 1% (about 0.7 percentage points). In March of last year, the differential between the fixed rate and the variable rate was around 1.44%.

This reality justifies, at least in part, that the popularity of the fixed rate is increasing : if at the end of 2021 the fixed rate represented only 1.4% of the existing mortgage loan portfolio, according to the latest data from the Bank of Portugal , the new contracts signed in October and November at a fixed rate already accounted for 7% of the total amount granted.