Portuguese Government Confirms Exemption on Early Mortgage Repayment Fees Until End of 2025
The Portuguese government has clarified that homeowners with variable-rate mortgages will continue to be exempt from paying early repayment commissions until the end of 2025. This legislative measure, which provides significant potential savings for borrowers, has been the subject of some confusion, prompting the consumer protection agency, DECO, to issue a public clarification. The rule stipulates that any partial or full early repayment of a home loan is free from the standard 0.5% commission.
This temporary regulation was first introduced as part of a package of measures to support families facing rising interest rates and cost of living pressures. Its extension provides a continued window of opportunity for mortgage holders to reduce their outstanding debt without incurring the penalty that is typically associated with such transactions. The standard commission for early repayment on variable-rate loans is legally capped at 0.5% of the capital being repaid, while for fixed-rate loans, it is 2%. The current exemption applies specifically to variable-rate contracts.
Despite the law being in effect, reports have emerged of some banking institutions being unaware of the details or failing to apply the exemption correctly. DECO has confirmed receiving complaints from consumers who were either misinformed by their banks or were incorrectly charged the fee. The organization is advising all consumers to be aware of their rights and to challenge any attempt by a bank to levy this commission. Should a bank insist on the charge, homeowners are instructed to file a formal complaint directly with the bank's complaints department and, if unresolved, to escalate the issue to the Bank of Portugal.
The objective of the legislation is to provide financial flexibility to homeowners. By making penalty-free capital repayments, borrowers can lower their monthly installments, reduce the total amount of interest paid over the lifetime of the loan, and shorten the overall mortgage term. This is a particularly relevant financial planning opportunity for those who have accumulated savings or received a financial windfall and wish to apply it towards their largest liability.
The measure is part of a broader governmental effort to mitigate the impact of economic pressures on households. By facilitating the reduction of debt, the government aims to increase the disposable income of families and strengthen their financial resilience. The Bank of Portugal is responsible for supervising the banking sector's compliance with this rule. Homeowners planning to make an early repayment are advised to formally communicate their intention to their bank in writing and to explicitly state their understanding that the transaction is exempt from commission under the current law.
The exemption is set to expire on December 31, 2025, unless a further extension is granted by the government. Until then, all financial institutions operating in Portugal are legally obliged to process early mortgage repayments without applying the commission. This clarification is crucial for ensuring that all eligible homeowners can benefit from the supportive measure as intended by the legislators.
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