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Get to know 12 key terms related to home loans.
ASP loan
ASP loans are intended for first-time home buyers who are aged between 18 and 44. You are eligible for an ASP loan if you started saving in an ASP account when you were at least 15 and at the most 44 years old, and have saved at least 10% of the price of the home you intend to buy. The home serves as collateral for the loan up to 75% of the purchase price.
You can add a state guarantee to an ASP loan free of charge. In addition, if the total interest rate on the loan rises above 3.8%, the state will pay part of the interest as interest subsidy during the first 10 years of the loan period.
Collateral
Collateral means assets that you pledge to your bank as a guarantee for the repayment of your loan. The home you are buying is always the primary collateral.
Additional collateral needs to be provided if the loan amount exceeds 75% of the home’s value. The pledge provided as additional collateral only covers the part of the debt that the value of the borrower’s home doesn’t cover in full.
Read more about collateral for a home loan
Deposit
When you are buying a home, a deposit is the amount of money you pay upfront to the seller to ensure that the transaction will go through later. If you end up cancelling the transaction, you will lose the deposit.
When the seller has received your deposit, they are required by law not to accept any new offers on the home.
Read more about making an offer on a home
FlexiPayment
As our home loan customer, you get the FlexiPayment feature free of charge. It allows you to decrease or increase your next loan payment in Nordea Mobile or Netbank without asking us first.
Guarantee
A guarantee means that the guarantor assumes liability for the repayment of another person’s debt. If the debtor fails to repay the debt as agreed, the debt may be recovered from the guarantor.
Interest rate hedging
With an interest rate hedge included in your loan, you will always know in advance how much interest you need to pay. You may want to hedge your home loan with an interest rate collar, interest rate cap or fixed interest rate. You should also prepare for a rise in interest rates in advance by building a financial buffer.
Read more about interest rate hedging
Loan cap
A maximum home loan equals 90% of the fair value of the collateral you provide for the loan. When buying a home, the fair value of the collateral refers to the purchase price of the home. The loan cap for first-time home buyers is 95% at maximum. For ASP loans, the maximum amount is 90%.
Margin
The interest rate on your home loan is composed of a reference rate and a margin. The margin of your home loan will remain the same throughout the loan period, whereas the reference rate will fluctuate according to market movements.
The margin we charge for your home loan depends on your circumstances, including the collateral you can provide and your repayment ability. We agree on the margin separately with each customer and for each loan, and record it in the loan agreement.
Read more about the home loan interest rate
Preliminary loan offer and loan promise
You can get a preliminary loan offer when you fill in our home loan application online and meet with us to negotiate on a home loan. On the application, we will ask about your personal finances, including your income, expenses, savings and assets, as well as your existing loans.
In the preliminary loan offer, you will see the loan margin and how much you can borrow.
Once you have received a preliminary loan offer and delivered the required documents to us, you can get a loan promise. With the loan promise, we commit to lending you the agreed amount.
Applying for a preliminary loan offer and loan promise is free of charge and you are not obliged to take out a loan from us.
Read more about the preliminary loan offer and loan promise
Reference rate
A reference rate is a market interest rate used by banks to set a price on loans, such as home or student loans. The value of a reference rate is always publicly available to everyone. The reference rate used in the euro area is the Euribor.
The most commonly used reference rate in Finnish home loans is the 12-month Euribor. It’s a variable interest rate which makes your home loan interest rise or fall once a year on the interest rate adjustment date. There are also other reference rate options available, such as the 3-month and 6-month Euribor rates, which change at shorter intervals, and Nordea’s own reference rate Nordea Prime.
Read more about home loan reference rates
Repayment method
The repayment method of your home loan determines how you will repay your loan. You will select the method when you negotiate on a loan with us. The interest rate on your home loan changes when the value of the reference rate changes, which will affect either your monthly payment or loan period, depending on the repayment method you have chosen.
If you choose equal payments (annuity), the monthly payments (instalment + interest) are of equal size at the beginning of the loan period. The monthly payment will only change if the interest rate changes.
Equal instalments is the best choice if you want to make larger payments at the beginning of the loan period. The instalment is always the same, but the monthly payment varies based on the interest.
Fixed equal payments is a good option if you want to know exactly how much you have to pay every month. All your monthly payments will be equal. If the reference rate rises, the loan period is extended, and if the reference rate falls, the loan period shortens. The monthly payment is always at least equal to the amount of interest.
Read more about the home loan repayment methods
Self-financing share
A home buyer must have at least 10% of the purchase price in savings or a corresponding amount of other collateral. If you’re a first-time home buyer, the minimum self-financing share is 5%, or if you take out an ASP loan, the minimum share is 10%.
Read more about the self-financing share
This article was published originally on Etuovi.com.Opens new window
