Mortgage credit: Is renegotiating conditions with a debt-to-income ratio above 36% worth it?

If you need help reducing your credit or insurance expenses, know that Poupança no Minuto offers a free intermediation service. Through an intermediary, it ensures ease of communication between you and the banks to achieve the most advantageous credit proposal.  

But first, note the Government's measure regarding the renegotiation of home loan conditions and whether it is an option worth considering in light of the counterparts.

What credit contracts should be renegotiated by banks?  

Through the exceptional measure that will be in force until the end of 2023, banks are now required to contact customers with credit contracts for the acquisition of own and permanent housing, with a variable rate, and a debt amount up to 300 thousand euros . This applies in cases where there has been an increase in the effort rate up to 36%, resulting from the increase in the Euribor, at 3, 6 or 12 months.  

However, not all mortgage holders have a debt-to-income ratio of 36%, but those who are in the following situations: 

• Effort rate equal or greater than 36% resulting from a 5% increase in the last year;  
• Effort rate equal to or above 36% resulting from an increase of over 3% in the interest rate associated with the credit contract;  
• Effort rate equal to or higher than 36% during the last installment increase;  
• Effort rate equal to or greater than 50%.  

Banks are required to propose, but clients are not obliged to accept

In these situations, banks are thus required to present a proposal for reduction of the installment through the renegotiation of contracts. If there is doubt about whether the holders qualify for this measure, banks may request the submission of the IRS statement to them, and clients have 10 days to share the documents thereafter.

Cases in which the home loan is associated with a fixed rate or is intended for a secondary housing or for renovations, with a mortgage guarantee, cannot have this exceptional measure applied.  

Note that, banks are required to notify customers in this situation, but customers are not required to accept the proposal in question.  

As long as borrowers continue to meet the monthly loan payments, they are not obligated to accept the bank's offer of reduction.

But it's worth renegotiating the contract terms?

Facing the conditions that banks can offer in the contract renegotiation, you may be facing: 

• An extension of the deadline for the contract, being able to resume the previously contracted deadline;  
• A reduction in the current contracted spread; 
• Capital grace period, where only interest is charged; 
• Capital deferral, postponing payment of a percentage of the capital until the end of the contract.  

Can the conditions offered be compensated?

However, as a rule, housing credit contracts are typically made up to the legal maximum, so extending the term may not be an option.  

In addition, the grace period for capital and the deferment of capital are two solutions that banks have not allowed borrowers recently.

And reducing the spread could be beneficial? For a review of this value, the bank uses the most recent average of the associated index - Euribor in the case of variable rate. So, since this value is now higher than when you took out the loan, it will be more challenging to reduce the spread.

In order to do so, the bank may require you to hire other associated products with your financing, such as getting a credit card.

But are there no other solutions that reduce your monthly credit installment more?  

What other solutions can further reduce the provision of credit?

Transfer both your housing credit to a new bank, as well as your life insurance associated with the loan to another insurer, are two solutions that can ensure an even greater reduction in the amount you pay for your monthly installment.

By transferring your housing credit, you end your current debt at the bank and create a new one at a different bank. This implies contracting new and different conditions, which may be more advantageous for you, also at a financial level.  

The same happens with life insurance. When you contract a home loan, the bank requires you to have this insurance, and usually the bank asks you to do it with the insurance company associated with it. But this second step is no longer mandatory, and customers are unaware that they can take out insurance with another entity that may have significantly lower costs. Therefore, even if you have already done so, you can now transfer the insurance to another company and acquire more suitable conditions and at a lower cost.

Ask for help from a credit intermediary

To understand which situation is most advantageous for reducing your monthly housing loan installment, it is easier to ask for help: Did you know that credit intermediaries/insurance brokers offer free services?

The intermediaries and mediators of Poupança no Minuto can help you by communicating with banks and insurers, so you can hire the best offer for you and start saving with your credit and/or insurance!