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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 to save in an ASP account when you were 15 at minimum or 44 at maximum, 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.
ASP loans are attractive, as you can add a state guarantee to them 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.
Read more about ASP loans.
Interest rate collar
With an interest rate collar, you can set a cap and a floor for the loan interest rate. The interest rate collar allows the interest rate to fluctuate between these two limits, but ensures that your monthly loan payment won’t exceed or fall below the agreed amount while the collar is in force (3, 4, 5, 7 or 10 years), helping you avoid unwelcome changes in the monthly payment.
Read more about the interest rate collar and other hedging options.
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.
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%.
Loan offer and loan promise
You can get a preliminary loan offer if 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.
A preliminary loan offer is an indication of how much you can borrow and the margin we offer on your home loan.
Once you have received a preliminary loan offer from us and delivered the required additional documents to us, you can get a loan promise. With a loan promise, we commit to lending you the agreed amount.
Applying for a 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.
Loan insurance
There’s no need to carry all the risks alone. With insurance you can prepare for unexpected risks, such as a weaker loan servicing ability due to a serious illness. You can use the compensation to repay your home loan or on something else, whichever you prefer.
FlexiPayment
We are the only bank in Finland to offer our customers a free FlexiPayment feature. It allows you to decrease or increase your monthly loan payment in Nordea Netbank or Mobile without asking us first.
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 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 home loan repayment methods.
Margin
The interest 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 home loan interest.
Self-financing share
You can’t buy a home with borrowed money only. 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.
Collateral and guarantee
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.
A guarantee means that a given person – the guarantor – assumes liability for the repayment of another person’s debt. If the debtor fails to repay the debt as agreed, the guarantor may need to repay it instead.
Read more about collateral for a home loan.
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 the 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.
This article was published originally on Etuovi.com.Opens new window
