- What is the reference rate of a home loan?
The total interest rate on a home loan consists of the customer-specific margin and the reference rate. The reference rate may be a generally used market reference rate (such as the 6-month or 12-month Euribor) or the bank’s own reference rate (e.g. Nordea Prime). Your margin will remain the same throughout the loan period, whereas the reference rate will fluctuate according to the market interest rates. The most commonly used reference rate in home loans is the 12-month Euribor. You can check the reference rate on your home loan easily in Nordea Mobile or Netbank under your loan details.
- Why are home loan reference rates rising?
After a long period of low interest rates and low inflation, prices have begun to rise (causing inflation) faster than expected. A generally favourable inflation rate is considered to be around 2%, but this year inflation has accelerated to 7%. The factors behind the rapid rise in inflation are the pickup in economic activity after the Covid-19 pandemic, the higher cost of energy, a shortage of raw materials and the war in Ukraine. The central banks are striving to rein in high inflation by raising interest rates, with which they aim to influence the behaviour of consumers and businesses and thus control the increase in prices. The long period of negative interest rates has actually been very unusual, and the return to interest rates above zero is, in fact, a sign that the economy is functioning normally.
- Can reference rates fall again or is this rise permanent?
Usually the economy reacts to higher interest rates fairly slowly. That’s why it’s unlikely that interest rates would immediately begin to fall again. The central bank is closely monitoring the effects of interest rate rises on the economy and will adjust its policy rate as needed.
- How high will interest rates rise?
According to current forecasts, the rise in interest rates appears set to continue at least for the next 12 months. Forecasts have recently changed rapidly, but currently the markets expect that the 12-month Euribor will be 2.2% at the end of this year and 2.5% at the end of next year.
- How will the rise in reference rates affect home prices?
When interest rates rise, loans become more expensive. This could have an adverse effect on the development of the prices of homes. Currently home prices are expected to stop rising or to even begin declining slightly by the end of next year. However, there is no bubble in the Finnish housing market despite the fact that low interest rates have persisted for so long. Read more in our housing market reviewOpens new window.
- Will the rise in interest rates have an effect on home selling times?
The housing market has slowed down this year from last year’s record levels. However, homes are still selling quite swiftly as the housing market reverts to normal trading volumes. In May, the volume of home sales was similar to the volume seen in May 2019. Home selling times have continued to shorten across Finland this year, even though the number of transactions has declined.
- When will the interest rate on my loan change?
The loan reference rate is always revised on the interest rate adjustment date. You can check the next interest rate adjustment date of your home loan in Nordea Mobile or Netbank under the loan’s details. The interest rate adjustment date depends on the reference rate of your home loan. The reference rate of a home loan tied to the 12-month Euribor is revised every 12 months, whereas the reference rate of a home loan tied to the 6-month Euribor is revised every 6 months. The reference rate is locked on the interest rate adjustment date to its level on that day and it will remain in effect until the next interest rate adjustment date. In other words, your reference rate doesn’t change daily according to market fluctuations but only on the interest rate adjustment dates. When you take out a new loan, the interest rate adjustment date is always the drawdown date of the loan.
- How much can my loan repayment increase as interest rates rise?
As interest rates rise, many things, including your remaining loan amount, loan period and the repayment method you have chosen, will affect your monthly payment and interest costs. Before granting you a home loan, we always test your loan with a 6% interest rate to make sure your finances will hold up even in the event of interest rate rises. The table below contains examples of a loan payment at various interest rate levels – it gives you an approximate idea of how much a loan payment changes with different interest rates. You can gain an idea of the amount of your own monthly payment using our home loan calculator.
| Loan payment at various reference rates | 0% (total interest rate 0.8%) | 1% (total interest rate 1.8%) | 2% (total interest rate 2.8%) | 3% (total interest rate 3.8%) |
| EUR 100,000 | EUR 371 | EUR 418 | EUR 469 | EUR 523 |
| EUR 150,000 | EUR 556 | EUR 626 | EUR 702 | EUR 783 |
| EUR 200,000 | EUR 740 | EUR 834 | EUR 935 | EUR 1,043 |
| EUR 300,000 | EUR 1,108 | EUR 1,249 | EUR 1,401 | EUR 1,563 |
| EUR 400,000 | EUR 1,477 | EUR 1,656 | EUR 1,867 | EUR 2,083 |
In the examples, the loan payments are calculated based on a 25-year annuity loan with an interest rate margin of 0.8%. The amount includes both the monthly instalment and the interest. The calculation is indicative. Updated 20 June 2022.
- How can I prepare for a rise in interest rates?
The monthly home loan payment is often the largest single expense in a household, which is why it makes sense to hedge against rises in the loan’s interest rate. One way to prepare for a rise in interest rates is to save regularly. Another option which can bring you some financial peace of mind is interest rate hedging. You can start monthly saving right away – see our tips!
- What should I look out for if I’m planning to buy a home?
If you’re planning to buy a home, it’s worth checking how an increase in interest rates and costs could affect your budget. Even though there’s plenty of activity in the housing market and you can book a home loan negotiation quickly, we recommend applying for a loan commitment from your bank well before you go home hunting.
- I’m planning to build a house. What should I do now that construction costs are rising?
If you’re planning to build a house, we recommend that you prepare for higher costs by adding a buffer to your budget. If your building project is already under way and higher costs have caught you by surprise, you may have to consider adjusting your plans in some way to keep your costs within your planned budget. If necessary, contact us so we can find a solution for your situation together.
- What should I do if I’m struggling with my loan repayments?
You shouldn’t grapple with the problem on your own, but instead contact us if you’re struggling with your loan repayments. There are several solutions to your situation, including extending the loan period, taking advantage of the free FlexiPayment feature or applying for a repayment holiday. You can activate the FlexiPayment feature or apply for a change to your repayment schedule easily in Nordea Mobile or Netbank.
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