If you are in difficulties, the ideal is to be you and not the bank to take the initiative to renegotiate your home loan. However, pay attention to these details.
Euribor continues to rise non-stop. Very quickly it will reach 3% and maybe even surpass that mark. This will be a tragedy, especially for families who took out loans last year or in the last 4 or 5 years, when the Euribor was negative and the installments were very low. Many thought those values would last forever. Pure mistake.
First of all, you must understand that – as much as it pains you to read this – the values you have or will have in the coming months are the “normal” values. Euribor is usually around 2%. Therefore, it was enough for us to return to “normality”, albeit for bad reasons (war and inflation), to realize that many families did not foresee such a rapid rise and now they will need help.
One of the “aids” that the Government has approved (it remains to be promulgated and published in the Diário da República) was to oblige all banks to present a proposal to customers that lowers the installment whenever the effort rate is equal to or greater than 36%.
What is the effort rate?
The formula is simple: just divide the sum of all your credits (even from other banks and credit cards) by your family’s net income (excluding food allowance). The value you give is your effort rate. The ideal is always to be less than 35% to have room for maneuver in case of climbs like this.
The problem is that, with inflation, everything increased at the same time. The money that should be left over to accommodate the increase in the house payment is also being diverted to the other increases. Unfortunately, it is what is called the “perfect storm”.
So, you already know that you should expect a contact from your bank if your effort rate exceeds 36%.
Just to have an idea if you will be covered or not, in the case of a couple where both earn 1,000 euros net, the effort rate only reaches 36% if the benefit reaches 720 euros. If you do not reach this amount, the bank will not be obliged to renegotiate with you.
take the initiative
If you are in difficulties, the ideal is to be you and not the bank to take the initiative to renegotiate. Don’t forget a very important detail: if the bank suggests an increase in the term or a credit consolidation or a new credit, this can be considered a restructuring. This implies being “marked” at Banco de Portugal as a risky customerwhich may imply future difficulties if you need other credits.
The ideal is to lower the spread, while maintaining the term, or simply transfer the credit to another bank with better conditions (this does not harm you with the Bank of Portugal).
Attention to a proposal that some banks are making: now fixes the value of euribor for 4 or 5 years and then the value of the difference at the end of the period adds to the amount owed until the end of the contract. This can be a good proposition for the most afflicted. They will not strictly save anything, but block the increases for the next two years. It could be a solution.
One last alert
You are not obliged to accept the bank’s proposal, but under no circumstances will you miss a single payment. If to avoid this situation you have to accept a less good proposal, accept it. This is what we can call the “lesser evil”. But also present alternatives. trades. insist. Look for intermediate solutions (deferral of capital, grace period, extension of the term, refinancing, lowering the spread by accepting products or services you need, etc…). Banks also have no interest in a customer failing to make a payment. This is bad for them.
I am convinced that many people still believe that there will be measures that will bring them back to the old installments. This will not happen. At most, the installment will go down a little in relation to what they currently pay or what they will pay from the next review. We have to be realistic. The times of low installments are over.
Rebuild your monthly budget based on this. Until inflation starts to come down, it’s going to be tough times.