When repaying a home loan, how much time can I reduce the contract?

Are you looking to take out a home loan and feeling lost with doubts? Turn to a credit intermediary and clarify all your questions. The agents of Poupança no Minuto accompany you in all stages of the credit process, for free, and handle all the paperwork and communication with the banks.  

But notice how early repayment of home credit currently works and how it can be applied in various ways.  

Amortizing the home loan: Reduce the installment or the term?  

Amortizing, that is, deducting a portion of the outstanding balance on a home loan can allow you to: reduce the monthly payment amount, or, if you choose, the repayment term of the loan.  

In other words, if you have the purpose of decreasing the credit maturity by amortizing, and can continue to pay the same monthly installment amount, you can settle an amount that allows you to maintain the same installment. This allows you to keep similar conditions, but finishing paying off the credit earlier than agreed upon.

If you have this possibility, negotiate with your bank to understand how much time you can reduce your contract, depending on the amount you want to amortize.

Time reduction will always depend on the specific conditions of each loan. But we provide some examples below, considering different contracts, to understand how it can work in practice.  

Commission for early repayment

Note that, as a rule, banks charge an early repayment fee, which can be:

• Up to 0.5% of the capital in debt in contracts with variable rate regime;  
• Up to 2% of the outstanding debt in the remaining contracts.

However, in 2023, a measure is in effect that allows exemption from this commission in variable rate contracts, to help the Portuguese who want and are able to repay this burden, or part of it, now.  

The impact of amortizing part of the credit within the repayment term

Let's see some examples to understand the impact that amortizing part of the credit can have on the repayment term.

In a housing loan with 200,000 euros in debt, interest rate of 3.9% and a repayment term of 360 months, a borrower currently pays 943.34 euros in monthly installments. If they pay off 10,000 euros, the debt amount becomes 190,000 euros. Keeping the same approximate installment amount (942.72 euros), the repayment term decreases to 328 months. Therefore, in this case, the loan holder is able to reduce the payment term by 2 years and 8 months.  

Already in a home loan with 250,000 euros in capital debt, interest rate 3.75% and 360 months of repayment, the borrower pays 1,157.79 euros in monthly installments. By amortizing 20,000 euros, the remaining debt is 230,000 euros. To maintain a similar installment value (1,157.31 euros), you can reduce the repayment term by 49 months. So, with these conditions and paying off 20,000 euros, you reduce the term by 4 years and a month.

Now considering a housing loan with 300,000 euros of due capital, interest rate of 4% and 360 months of repayment term, a customer pays 1,432.25 euros. Amortizing 50,000 euros to the debt, the outstanding capital decreases to 250,000 euros. Therefore, by keeping the same value of monthly installment (1,432.25 euros), it is possible to reduce the repayment term to 98 months. This is equivalent to a reduction of the payment term by 8 years and two months.  

Negotiating is the key... And with help, it can be easier

Note that these cases may not be so straightforward, and are always dependent on the specific conditions and of each bank. You may need to negotiate, but this way you can do it in a more informed and supported manner.  

Or, it's simple: Turn to a credit intermediary who deals with this process for you, at no cost. The agents of Poupança no Minuto can accompany you throughout the entire credit process, whether in contracting, transferring, or any other related issue.