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Variable or fixed interest rate

A property investment is usually a medium to long term investment and it is important to choose the interest rate structure that is most suited to your investment profile and also personal preference.

A variable interest rate is an interest rate that changes periodically over the life of the mortgage. The Portuguese banks link the variable interest rate to either the 6 or 12 month Euribor rate and increase the Euribor rate by the approved interest rate margin. The interest rate margin is fixed for the life of the mortgage but the Euribor rate is adjusted to market rates every 6 or 12 months, depending to which Euribor the rate is linked.

Variable rates have historically been lower than fixed rates but this will depend on the interest rate curve. At the time of writing this article, variable and fixed rates are on similar levels.

The early repayment penalty during a variable interest rate is 0.50%, calculated on the amount repaid early. This offers great flexibility for clients that are expecting future cash flows which will be used to repay the mortgage partially in the future.

On the other hand, a fixed interest rate is an interest rate that remains the same for either an agreed period of the mortgage or for the entire term of the loan.

This means that the interest rate will not change, regardless of changes in the market conditions or other factors. For example, a fixed rate mortgage might have an interest rate that stays the same for the entire 30-year term of the loan.
The advantage of a fixed interest rate is that it provides predictability and stability for borrowers, but the disadvantage is that it might be higher than a variable interest rate in some market conditions.

The early repayment penalty for a partial or total early repayment is 2%, calculated on the amount repaid early.

If you would like to discuss the different interest rate structures in more detail in order to make an informed decision as to what structure is more suitable to your specific requirement, please do not hesitate to contact me.

March 2023