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What do collateral and guarantee mean?

The collateral provided for the loan means the assets the borrower pledges to the bank in case they are not able to repay the loan as agreed. 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 is defined as an undertaking where a guarantor assumes the liability to repay another person’s debt to a creditor. In other words, if the borrower fails to repay the debt as agreed, the debt may be recovered from the guarantor. This kind of personal guarantee is usually not accepted as collateral for a home loan.

A home's collateral value is 75% 

The collateral value of the home used as collateral for the home loan is 75% of the home's market value. You must have 25% of the purchase price in savings or a corresponding amount of other collateral. The market value of your home is the price you pay for your home on the market.

For example, if you buy a home for 100,000 euros, the collateral value is 75,000 euros; this is also the amount of the home loan you can take out with your home as the only collateral. If the loan amount you need exceeds 75,000 euros, you must provide additional collateral or use more of your savings.

You should also keep in mind that the loan cap determines the maximum loan amount you may be granted. The home loan cap – or the maximum loan amount you can take out – is in most cases 85% of the home’s value. In any case, you must cover at least 15% of the purchase price with savings or a corresponding amount of other collateral.

Read more about loan cap

Security is a form of guarantee for the repayment of a housing loan to the bank.

The security value of the home used as security for the loan is 75% of the market value of the home.

You may need further security for the remainder of your loan:

  • You can purchase OwnGuarantee, for example, for the unsecured portion of your loan (15% at maximum, and 20% of the housing loan in the case of first-home buyers). In addition, you will need your own savings or other security for the remainder.
  • You can take out a partial state guarantee for a maximum of 10% of your housing loan, so besides that you will need other security or own funds.
  • The price of an OwnGuarantee and a partial state guarantee depends on the amount of the guarantee. When you use your own funds to finance a home, the required additional security is smaller and the expense is lower. 
  • Additional security may consist of real estate, flats, securities and other assets that can easily be converted into cash. In some cases, a personal guarantee is also possible.
  • A free state guarantee is included in an ASP interest-subsidised loan up to 90%, i.e. once you have saved 10% of the price of the home, you will need no other security.

Personal guarantee or pledging another person’s property as additional security:

  • You can ask another person to pledge their property, such as their home or holiday home, as additional security for your housing loan (deficiency pledge). 
  • You can also ask another person to be your guarantor, in which case a personal guarantee (deficiency guarantee) is taken out as additional guarantee for your housing loan. 
  • The personal guarantee or pledge standing as additional security only covers the part of the debt that the selling price of the borrower’s home cannot cover in full.

In cases where the bank cannot make a security appraisal of the home, the bank will agree with the customer on a separate appraisal and charge the costs for it from the customer.

Is a personal guarantee an option?

A personal guarantee means that a personal guarantor undertakes to pay another person’s loan if the borrower is not able to repay the loan to the creditor.

Nowadays a personal guarantee is usually not accepted as collateral for a home loan if no concrete real collateral is pledged.

However, you can ask another person to pledge their property, such as their home or holiday home, as additional collateral for your home loan. This is called a deficiency pledge.

Prices

Security
Most common fees on securityPrices
Certificate of mortgages and encumbrances on a property or other certificate from the National Land Survey of Finland20,00 €
Printout of information on a unit in a housing company (osakehuoneistotuloste) from the National Land Survey of Finland20,00 €
Certificate of pledge (RS-5, certificate given to the pledge holder) incl. VAT 24 %100,00 €
Change of security *)200,00 €
Secondary pledge agreement100,00 €
Safe custody for the seller and buyer of certificates of shares in a housing company and mortgage bonds given as security, and supervision of fulfillment of a contractual term concerning the deposit or pledge of the shares, minimum
50,00 €
Fee charged for monitoring the trading in a securities portfolio pledged as collateral, per trade transaction incl. VAT 24 %40,00 €
Fee charged for the delivery of share certificates serving as security for a loan to another bank for making notes (fee covers labour costs and liability for loss), per delivery, incl. VAT 24 %50,00 €
Fee for valuating property collateral, incl. VAT 24%50,00 €
Fee for valuating forest and agricultural property collateral (fee is charged per property identifier), incl. VAT 24 %49,00 €

*) A change of guarantor is also considered a change of security. 

Fees are charged in accordance with the Consumer Protection Act 38/1978, sections 17a of Chapter 7, where applicable, and taking into account the contractual payment that will cover part of the costs.

Legal assignments related to security

The practice related to the security for a basic renovation loan is described under "Security for consumer credit".

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