Benefits of an interest rate cap

The monthly home loan payment is often the largest single expense in a household. That’s why it’s good to think about how you would cope with higher monthly payments should interest rates rise.

By taking out an interest rate cap on your home loan, you will always know in advance what the maximum interest rate charged on your loan will be.

So even if the general reference rate rises as a result of market movements, your interest rate won’t exceed the agreed level. However, if the reference rate falls below the cap, the interest rate on your loan will fall, too.

Free interest rate cap for buyers of YIT Homes

If you buy a turnkey YIT Home between 29 January and 30 April 2024, YIT will pay for a 2% interest rate cap on your home loan. The interest rate cap will be valid for 5 years. This means that the maximum interest rate charged on your loan would be 2% + the loan margin for 5 years. The interest rate cap is available for loans where the reference rate is the 12-month Euribor.

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Reaping the benefits of low reference rates

The reference rate on your loan tracks the Euribor rate. This means that you will reap the full benefit if the Euribor rates fall.

The reference rate will not exceed a certain level 

You will be safe in the knowledge that the reference rate on your loan will not exceed the agreed level – so even if general interest rates were to rise, your interest rate will stop at the cap.

Stability against reference rate fluctuations

The monthly payment on a housing loan is typically the largest individual expense in a household. An interest rate cap helps keep the monthly payment under control.

Flexibility for your loan instalments

If your loan has an interest rate cap, you can flexibly change your loan’s repayment schedule. This means that you can add instalment-free months to your loan, for example. 

Features of the interest rate cap

  • An interest rate cap can be added to new and existing home loans alike.
  • You can add an interest rate cap to a home loan with 12-month Euribor as the reference rate. This means you can make changes to the repayment schedule and other details of your loan on the same basis as with other Euribor-linked loans.
  • You can choose an interest rate cap that is valid for 3, 5, 7 or 10 years. 

Example of an interest rate cap and the annual percentage rate of charge (APR)

Add an interest rate cap to your loan to set a maximum level for the reference rate during the validity of the interest rate cap.

Example: You take out a loan of 150,000 euros and the loan period is set at 24 years. The agreed reference rate is the 12-month Euribor and the margin is 0.53% (April 2024). You choose an interest rate cap of 3.75% for 10 years. This means that the total interest rate of your loan may rise to 4.28% at maximum during the validity of the interest rate cap. The APR is 4.4%, including an opening fee of 600 euros and a monthly fee of 2.50 euros for the automatic debiting of loan payments. Any fees for the interest rate cap have not been taken into account in the calculation of the APR.  The number of payments is 288. The total amount of the loan and loan costs is 249,585 euros. The monthly payment (annuity) is 830 euros and does not include the interest rate cap fee which is paid separately.

The amount of the loan, the loan period and the interest are a representative example for the home loans offered by Nordea. The example is indicative and has been calculated using certain assumptions. The example does not necessarily correspond to the actual APR charged on the granted loan.

When buying a home, you also need to pay the costs related to the registration of ownership and pledging of your home. You also need to see to it that your home insurance is up to date. In case of a property, you will need fire insurance at the least. In some cases, we need the help of a real estate agent to determine the value of your home. We will charge a fee for this service.

Wondering about the effect of rising interest rates?

Protect your loan and finances against rising interest rates and costs by saving or with interest rate hedging.

Read about how you can protect your finances against higher rates

Should I save and invest or pay off my housing loan?

Finns have traditionally repaid their home loans quickly but it may not the best option for most. Wondering why?

Read more about saving while repaying a loan

What would higher interest rates mean for your monthly loan payment?

Use our home loan calculator to see how a change in interest rate would affect your monthly payments.

Try our home loan calculator