Your home loan interest rate is composed of a reference rate and a margin

A variable interest rate on a home loan consists of a customer-specific margin and a reference rate. The margin will remain the same throughout the loan period, whereas the reference rate will fluctuate according to market interest rates. 

The reference rate on a home loan may be the 3-month, 6-month or 12-month Euribor rate or the Nordea Prime rate. Alternatively, you can choose a fixed interest rate, which means that your interest rate will remain unchanged for the chosen period.

What factors affect the home loan margin?

The margin we charge for your home loan depends on your circumstances, including the collateral you can provide and your repayment ability. From our point of view, the loan margin covers our expenses and the risk we take by granting the loan.

You will find out the precise margin when you apply for a preliminary loan offer from us. We agree on the margin separately with each customer and for each loan, and record it in the loan agreement. 

Variable or fixed interest rate?

When choosing your home loan interest rate, think about whether you need stability and predictability with your loan payments or want to tap into the quick changes in market interest rates.

Variable rates change based on the movements in the interest rate markets, meaning that they rise when interest rates rise and fall when interest rates fall. With a variable rate, you get to benefit from favourable changes in interest rates, as the interest on your loan will decrease when the value of the reference rate falls. 

The risk you need to accept is that interest rates may rise, and if that happens, your home loan interest rate will rise, too, when the interest period ends. In other words, the reference rate of your home loan doesn’t change daily according to market fluctuations but only on the interest rate revision dates. 

Euribor rates are available for different tenors. The 3- and 6-month Euribor rates react faster to changes in the general interest rate environment, whereas the 12-month Euribor offers peace of mind for one year at a time. 

Nordea Prime is a reference rate issued by us that is adjusted in line with the market rates, albeit less frequently than the Euribor rates.

Borrowers with a variable-rate loan benefit from falling interest rates, while borrowers with a long-term fixed rate remain mostly unaffected when interest rates rise.

Should you change the reference rate of your existing loan?

In home loans the loan period is typically long, 23 years on average. The moment for changing the reference rate is short compared to the entire loan period. So when you’re assessing the interest expenses of your loan, it’s more essential to consider where interest rates will be in a few years rather than in a few weeks or months. 

You should keep in mind that the choice between a fixed rate and a variable rate will have a bigger impact on your loan costs than the choice between the different Euribor rates. Changing the reference rate may also affect the loan margin. 

Secure your home loan reference rate with interest rate hedging

When you negotiate with us on a home loan, we will perform a stress test on your loan costs. We calculate how your total loan costs would change if the loan interest rose to 6%. This is one way for us and for you to ensure that you will have enough money left to service your loan after your other expenses.

We also recommend that you save while you repay your loan to ensure that you can cover rising interest rates or other unexpected expenses without losing control over your finances.

You can hedge your home loan with an interest rate collar, an interest rate cap or a fixed interest rate. With an interest rate hedge included in your loan, you will always know in advance how much interest you need to pay.

Annual percentage rate of charge takes into account the interest rate and additional charges

Besides the interest rate, your home loan includes other loan servicing costs, which are taken into account in calculating the home loan’s annual percentage rate of charge. The annual percentage rate of charge for a home loan accounts for all its costs, including the opening fee and account management fee. 

Therefore, when comparing the prices of loans, you should use the annual percentage rate of charge.

Read more about comparing home loan offers

Frequently asked questions about home loan interest rates