August data on home loans intermediated by ComparaJá shows that the average term for purchase loans was 36 years, while for loans transferred from one bank to another it was 30 years. This six-year difference represents the most significant movement of the year in this variable, at a time when the recommended effort rate limit was set at 45%, by decision of Banco de Portugal.
The mechanism behind this difference is simple. In transfers, the term is inherited from the original contract, and extending it often negates the benefit of switching, because a lower payment spread over more years may cost more in total interest than the spread you managed to negotiate. In purchases, on the contrary, the term is the last variable to be set, after the house price, own capital, and household income are defined, and serves precisely to fit the payment within the effort rate limit accepted by the bank.
Regulatory rules set maximum terms by age bracket, which means the possibility of stretching the term runs out faster for those who buy later in life. Knowing these limits has ceased to be a bureaucratic detail and has become the first calculation to make before choosing a house, because it determines how much you can finance with the same income.
The article leaves three concrete checks for those contracting loans: compare proposals at the same term rather than at the same payment, ask the bank for the total amount imputed to the consumer in each scenario, and resist the temptation to extend the term when transferring, since savings are measured in the total cost of the loan and not in the monthly payment.
