Age limits on credit: how the monthly installment?
There are news regarding the new housing loans. Banco de Portugal (BdP) issued a macroprudential recommendation that limits the maximum terms for payment of loans depending on the age of the holders.
This change comes into force as of April 1, 2022. And it has well-defined objectives: to converge the average maturity of new home loan contracts to 30 years by the end of 2022, thus reducing the risk of default and protect the financial system from “potential adverse shocks”. But how will these changes affect the monthly installment payable to the bank? We explain everything using concrete examples.
The major changes arise, above all, for those over 30, as they are no longer able to take out a housing loan with a maximum payment term of 40 years. Anyone between 30 and 35 years old can only ask for a maximum maturity of 37 years.
And whoever is over 35 years old can only pay their credit for 35 years, reads in the statement published by the BdP this Monday, January 31, 2022. This means that whoever is over 30 and wants to contract a housing loan will have less time to pay it off, a scenario that will affect the monthly payment. But how much?
They simulated contracting a loan to buy a house of 120,000 euros, considering a TAN of 0.70%. And the results are in sight:
In this before and after, it is clear that those who are up to 30 years old will not feel any difference in the monthly installment of the house to be paid to the bank. The same does not happen in the age group between 30 and 40 years. In the case of the oldest holder being 35 years old, the three-year reduction in the loan payment period increases the monthly installment by approximately 20 euros.
For those who are 40 years old, the maximum maturity becomes 35 years (five years less), which increases the house payment by about 35 euros per month. But the truth is that, “although some institutions can make longer terms, most banks only finance up to 75 years of age, so there will also be no difference in the funding term to date” for borrowers aged 40 or over. , clarify from the idealist/credithabitation.
In addition, "we must take into account that the reduction of the loan term also implies a lower cost with it, since we amortize more capital in the monthly installment and pay interest for fewer years." "Additionally, when we take out a loan, we do not we must forget that it is possible that our purchasing power will be lower when we retire”, underline the same experts.
Source: idealista
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