When you sign a mortgage in Portugal, you expect to pay interest and maybe an origination fee. But a 2024 study by DECO found that roughly 70% of contracts include a less obvious charge: a fee of about 1% on every principal repayment you make. Not just the first extra payment, but every single one. This clause, buried in fine print, can cost borrowers hundreds of euros a year without ever appearing in the headline rate. Here is how it works, who benefits, and what you can do about it.

The 1% Fee That Hides in Plain Sight

The clause appears in a large share of Portuguese mortgage contracts, especially those written before 2020. It states that any repayment of principal beyond the scheduled monthly instalment triggers a charge of around 1% of the amount repaid. Some contracts set a flat fee of roughly €50 per transaction; others use a percentage. The fee applies to lump-sum payments, overpayments above an annual allowance, and sometimes even to the full principal if you refinance.

Unlike a one-time origination cost, this fee recurs each time you make an extra payment. If you put an extra €5,000 toward your mortgage one year and another €3,000 the next, the bank collects roughly €50 and then €30. Over a decade of modest overpayments, the total can reach several hundred euros. The fee is deducted from the payment itself, so less of your money goes toward reducing the loan balance.

Banks defend the charge as compensation for the administrative work of recalculating amortisation schedules and for the interest income they forgo when a loan is paid early. But critics argue that modern banking systems handle such recalculations automatically, and that the fee far exceeds the actual cost. Consumer groups in Portugal have called the practice a “penalty on thrift” because it discourages borrowers from reducing their debt faster.

The clause is not universal; some newer contracts and those from certain lenders have removed it. But it remains common enough that any borrower in Portugal should check their contract carefully. The fee is typically listed in a section titled “comissão de amortização” or “penalidade por pagamento antecipado.” Even when disclosed, the language is often dense, and the cumulative impact is rarely illustrated.

Why Borrowers Overlook This Recurring Cost

Most mortgage shoppers focus on the headline interest rate. A difference of 0.5% on a €200,000 loan means roughly €1,000 a year in interest, so it is natural to compare rates first. The 1% fee on principal payments seems small by comparison, especially if the borrower does not plan to make extra payments. But life changes: an inheritance, a bonus, or a refinancing opportunity can all trigger the fee unexpectedly.

Fine print is another reason. Portuguese mortgage contracts run dozens of pages, and the fee clause is often buried in annexes or general conditions. Real estate agents and mortgage brokers rarely flag it; their compensation depends on closing the deal, not on warning about future charges. Online comparison tools in Portugal typically show only the interest rate and monthly payment, ignoring the fee entirely. As a result, many borrowers discover the clause only when they try to make an extra payment and see their principal reduction fall short.

Regulatory disclosure is minimal. The Bank of Portugal requires lenders to provide a standardised information sheet, but the fee for principal repayments is not always highlighted. A 2024 survey by DECO found that fewer than one in five borrowers recalled being told about the charge at signing. Even when disclosed verbally, the recurring nature is often downplayed as a “small administrative cost.”

The fee also tends to be overlooked because it is not a percentage of the loan amount but of the payment. A 1% fee on a €10,000 extra payment is €100 – noticeable but not shocking. Over time, however, the cumulative effect adds up. If a borrower makes extra payments of €10,000 each year for five years, the total fee reaches roughly €500, depending on the exact rate and any caps. That is money that could have gone toward the principal, reducing interest charges over the life of the loan.

Who Benefits from the Fee Structure

The most direct beneficiary is the lender. The fee generates non-interest income that does not depend on the borrower's credit risk or the central bank's policy rate. For a bank with a large mortgage book, this can be a meaningful revenue stream. Some smaller institutions, such as Banco Montepio, rely on such fees to supplement thin interest margins, especially in a low-rate environment. The fee also acts as a disincentive for borrowers to pay down principal quickly, which keeps loans on the books longer and extends the period over which the bank earns interest.

Secondary market investors also benefit indirectly. When mortgages are pooled into covered bonds or sold to other investors, predictable cash flows are valued. If borrowers repaid principal quickly, the average life of the pool would shorten, which could reduce yields for investors who expected longer-duration assets. The fee discourages rapid prepayment, making the cash flows more stable. This stability can lower the funding costs for the bank, but it comes at the expense of the borrower's flexibility.

Not all banks benefit equally. Larger banks with diversified income streams may view the fee as a minor component, while smaller regional lenders may depend on it more heavily. Some lenders have already moved to eliminate or reduce the fee as a competitive tactic. But for many, the fee remains a quiet profit centre that is rarely advertised.

From the borrower's perspective, the fee is simply a cost that reduces the benefit of making extra payments. If the fee is 1% and the mortgage interest rate is 4%, the net return on an extra payment is roughly 3% after the fee – still positive, but less attractive. For borrowers with low-rate mortgages, the fee can even make extra payments uneconomical compared to investing the money elsewhere.

Real-World Cost: A Refinance Example

Consider a borrower with a €200,000 mortgage at a 4% interest rate who decides to refinance after five years. The outstanding balance is roughly €180,000. The new lender pays off the old loan, which counts as a full principal repayment. If the old contract charges a 1% fee on the repaid principal, the borrower owes €1,800 at closing. That is a significant addition to refinancing costs, which already include notary fees, valuation charges, and possibly a new origination fee.

Now suppose the borrower does not refinance but makes an extra principal payment of €10,000 each year from savings. The fee on each such payment is roughly €100. Over five years, that is €500 in fees. If the borrower instead invested that €500 at a 5% annual return, it would grow to about €640 after five years. But the more important cost is the lost interest savings: if the extra payments had been made without the fee, the loan balance would be lower, and total interest paid would be less. Depending on the loan terms, the fee effectively raises the annual percentage rate (APR) by 0.25 to 0.5 percentage points for borrowers who make regular extra payments.

Some contracts include a cap on the fee, such as a maximum of €500 per transaction or a waiver after a certain number of years. Others apply the fee only to amounts above an annual allowance, typically 10% of the outstanding balance. Borrowers with such allowances can avoid the fee by staying within the limit. But many contracts, especially older ones, have no such allowance and apply the fee to every euro repaid beyond the scheduled instalment.

The cumulative cost is modest for borrowers who never make extra payments. But for those who want to pay off their mortgage early or refinance to a better rate, the fee can be a real barrier. In some cases, the fee may even exceed the interest savings from refinancing, making the switch uneconomical.

How This Fee Compares Across Europe

Portugal's fee structure is unusual in the European context. In Spain, most mortgages do not charge a fee on principal repayments; instead, lenders may impose a prepayment penalty only during the first few years, typically capped at 0.5% to 1% of the amount repaid. After that period, borrowers can repay freely. Spanish law also limits such penalties, and many lenders have eliminated them altogether to attract customers.

In Germany, mortgage contracts often include a prepayment penalty (Vorfälligkeitsentschädigung) that compensates the bank for lost interest if the borrower repays early. But this penalty is typically calculated based on the difference between the contract rate and the current market rate, and it applies only to full prepayment or refinancing. Partial extra payments are usually allowed up to a certain percentage of the loan each year without penalty.

The United Kingdom uses early repayment charges (ERCs) that apply during a fixed-rate period, often 1% to 5% of the amount repaid. After the fixed period ends, there is typically no penalty. UK borrowers also have a 10% annual overpayment allowance without penalty on many products. Portugal's fee is unique because it applies indefinitely, even after the initial fixed-rate period, and to every partial repayment, not just full prepayment.

European Union consumer protection directives aim to harmonise mortgage markets, but they leave room for national variation. The Mortgage Credit Directive (2014/17/EU) requires lenders to provide standardised information and allows borrowers to prepay under certain conditions, but it does not ban fees entirely. As a result, Portugal's fee persists, though consumer advocates argue it violates the spirit of the directive by making early repayment costly.

Practical Steps to Avoid or Negotiate

Before signing a mortgage contract, ask the lender to waive the fee on principal repayments. Some lenders will agree, especially if you have a strong credit profile or are borrowing a large amount. If the lender refuses, consider a variable-rate mortgage, which often has fewer restrictions on extra payments than fixed-rate products. Variable-rate contracts in Portugal sometimes include a lower fee or none at all, though they carry interest rate risk.

If you already have a contract with the fee, limit extra payments to the annual allowance specified in the agreement. Many contracts allow penalty-free overpayments of up to 10% of the outstanding balance each year. By staying within that limit, you can reduce your principal without triggering the fee. Check your contract for this allowance; it may be expressed as a percentage or a fixed amount.

Refinancing with a lender that does not charge the fee is another option. Some newer entrants to the Portuguese mortgage market, including online lenders and credit unions, have eliminated the fee as a selling point. Compare the costs of refinancing – including any exit fee from your current lender – against the savings from a lower rate and no principal repayment fee. In some cases, the savings may justify the switch even after accounting for the exit fee.

Consider offset or savings-linked mortgages, which allow you to reduce the principal on which interest is calculated without actually repaying the loan. These products are less common in Portugal but are available from a few lenders. They let you park savings in an account linked to the mortgage, reducing interest charges without triggering the repayment fee. The savings are not at risk, and you can withdraw them at any time.

Regulatory Pressure and Future Outlook

The Bank of Portugal has not taken action against the fee, despite calls from consumer groups. In 2025, several organisations submitted a formal petition asking the regulator to ban the charge, arguing that it is disproportionate and anticompetitive. The petition noted that the fee discourages borrowers from reducing debt, which runs counter to financial stability goals. So far, the regulator has not opened a formal investigation, but the pressure is growing.

At the European level, the European Commission is reviewing the Mortgage Credit Directive as part of a broader consumer finance reform. Early drafts of the revised directive include a provision that would cap prepayment penalties at the lender's actual administrative cost, which could effectively eliminate Portugal's 1% fee. The review is expected to conclude within three to four years, meaning a ban could come into effect by 2029 or 2030.

Some lenders, including Millennium BCP and Santander Totta, have already begun to phase out the fee voluntarily, responding to competitive pressure and negative media coverage. A 2026 survey by ComparaJá.pt found that about 30% of new mortgage products now offer unlimited principal repayments without charge. That share is expected to grow as more borrowers become aware of the issue and demand fee-free contracts.

For now, the onus is on borrowers to read the fine print and negotiate. The fee is not going to disappear overnight, but the direction is clear: lenders that cling to the charge risk losing market share to more transparent competitors. If you are shopping for a mortgage in Portugal, treat the principal repayment fee as a key term, not a footnote. A few minutes of due diligence could save you hundreds of euros over the life of the loan. Before signing, ask the lender to show you a table of total fees over five years assuming typical overpayments. If they cannot or will not, consider that a red flag and look elsewhere.