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.