What is the mortgage effort rate and why you should calculate it before buying a home

What is the effort rate?

The effort rate is a financial ratio that represents the percentage of your monthly net income used to pay off debts, especially your mortgage. In practical terms, it’s a way to assess whether your income is sufficient to cover a housing loan without compromising your family’s financial stability.

Banks use this metric to determine the risk associated with granting credit. If the effort rate is too high, there’s a greater chance that the borrower will struggle to meet repayments in the future.

Why the effort rate matters when applying for a mortgage

In Portugal, most banks follow a standard recommendation: the effort rate should not exceed 30% to 35% of the applicant’s net income. Some more conservative institutions may even prefer lower thresholds, particularly when other financial commitments exist.

For example, if your net household income is €2,500 per month and you pay €750 in total credit instalments (including personal loans and car finance), your effort rate is 30%. This is generally acceptable – but if the value rises, your chances of securing a loan may decrease or come with worse conditions.

That’s why before even beginning to look for a house, it’s essential to assess your real financial capacity. A good tool for that is the Engel & Völkers simulation guide, where you can explore how much house you can afford and how to save money before buying.

How to calculate your mortgage effort rate

The calculation is simple. Use the following formula:

Effort Rate (%) = (Monthly loan repayments / Monthly net income) × 100

You should include all loans in the calculation, not just the mortgage: credit cards, car loans, personal loans, and any other regular commitments.

What is the ideal effort rate?

An effort rate up to 30% is considered healthy. Between 30% and 35%, it may still be accepted by most banks, especially if your income is stable and you have no payment defaults. Above 35%, the likelihood of approval decreases considerably – unless there are other strong guarantees (like a large down payment or high-value assets).

Real estate consultants often help clients structure their financing plan realistically and in line with their long-term goals. Working with experienced consultants such as those at Engel & Völkers can be an excellent way to understand how banks will assess your application.

Factors that influence your effort rate

Some aspects that can affect your effort rate and your mortgage approval include:

• Total income: the higher your income, the more flexibility you have.

• Existing debts: too many open loans increase your risk.

• Loan term: a longer mortgage term can reduce the monthly instalment, lowering your effort rate.

• Down payment: the larger the initial contribution, the less financing you need.

If you're buying an apartment under construction, planning ahead becomes even more essential, since delivery times and financial planning go hand in hand.

Can the effort rate impact my daily life?

Yes. A high effort rate doesn't just affect your credit approval – it limits your family’s monthly budget and can create long-term instability. Households that allocate a large portion of income to credit repayments often struggle to maintain savings, respond to emergencies, or invest in other areas like education or retirement.

That’s why it’s important to think beyond the mortgage. Buying a house is a life project, and having the freedom to enjoy it without financial stress is fundamental.

How to improve your effort rate

Before applying for mortgage credit, consider these strategies to improve your effort rate:

• Pay off other debts: reduce financial obligations before taking on new ones.

• Increase income: side income or salary raises help improve the ratio.

• Negotiate a longer term: be cautious, as this may increase the total interest paid.

• Reduce the amount to borrow: look for properties within your financial range.

If you're unsure whether a house fits your budget, a professional property consultant can help with simulations and offer realistic advice. Engel & Völkers consultants provide valuable support not just during the property search, but throughout the entire financing and negotiation process.

The emotional side of home buying

Although numbers are essential, it’s impossible to separate the financial from the emotional when buying a home. A house by the sea, for instance, may represent a dream, a change of lifestyle, or a safe investment.

But even in these cases, calculating the effort rate should be a priority. That way, you're not just buying your dream house — you’re ensuring that this dream remains a source of joy and not of stress.

Whether you're planning to live in an apartment or buy a detached home, evaluating your financial capacity is the first step towards a safe and satisfying investment.

FAQ – Frequently Asked Questions about the mortgage effort rate

What is the mortgage effort rate?

It’s the percentage of your monthly net income used to pay all debts, especially the mortgage. It helps evaluate your ability to manage a loan safely.

What’s the recommended effort rate in Portugal?

Banks usually accept up to 35%, but ideally, it should stay below 30%.

How do I calculate my effort rate?

Use this formula: Effort Rate (%) = (Total monthly repayments / Net monthly income) × 100

Can I get a loan with a higher effort rate?

It’s possible in special cases – if you have high income or strong guarantees – but banks may offer worse conditions or require a guarantor.

What happens if my effort rate is too high?

The bank may deny your application, reduce the loan amount, or increase the interest rate. You may also be required to extend the term or increase the down payment.

Does the effort rate affect other areas of my life?

Yes. A high effort rate reduces flexibility for other expenses and makes your budget more vulnerable to unexpected events.

How can I improve my effort rate?

• Pay off existing loans

• Increase your income

• Save for a higher down payment

• Extend the mortgage term (with caution)

Should I work with a real estate consultant?

Absolutely. A qualified consultant can help you understand your budget, simulate different financing options, and present the best solutions to the bank.