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What is a charge for financial costs?

Each shareholder in a housing company pays a monthly charge for common expenses, which includes a maintenance charge and sometimes also a charge for financial costs. 

The charge for financial costs is a repayment towards a loan taken out by the housing company and the related interest expenses. You can choose to pay off your share of the housing company loan in part or in full. If you don’t pay off your share of the loan in full, you will have to pay the monthly charge for financial costs.

The maintenance charge, in turn, is used to cover the housing company’s costs resulting from heating and maintenance, for example.

Check the property listing for the charge for financial costs

The charge for financial costs may make up a significant part of your living costs, especially if you buy a new-build home.

”With new builds, the homeowner often pays less for the home itself but takes on a large share of the housing company loan,” says Jussi Pajala, the CEO of Nordea Mortgage Bank.

The share of the housing company loan allocated to the specific apartment is usually included in the property listing, which states both the sales price and the debt-free price. The debt-free price comprises the sales price and the apartment’s share of the housing company loan.

You may sometimes see cases where the housing company loan has not yet been allocated to the homeowners for repayment because the renovation has been recently completed or is still ongoing. This may happen especially with older apartments. 

According to Pajala, in cases like these it must stated during the sales transaction and in the brochure and the property manager’s certificate that the housing company has borrowed, say, a million euros for a plumbing renovation and that the loan is yet to be allocated. You can then get an estimate of the share of the loan that will be allocated to the apartment you want to buy.

The charge for financial costs may be surprisingly high – especially with new builds

Pajala points out that the charge for financial costs is not fixed. The amount you have to pay will vary over the years if the housing company loan is not hedged against higher rates. When interest rates rose in 2022–2023, many people were surprised by how much the charge for financial costs increased.

Before the legislative amendment of 2023, newly built housing companies were able to take out even larger loans than now, and it was common to take payment holidays during the first few years. If the housing company took a payment holiday at the start of the loan period, homeowners may have later been surprised by the eventual charge for financial costs.

“Today, the loan-to-value ratio may not exceed 60%, and housing companies can only take a payment holiday for one year during the first five years and this may not be the first year,” Pajala says.

Renovations may drive up the charge for financial costs in older buildings

People owning homes in older housing companies may also have to pay the charge for financial costs due to façade repairs or other major renovations.

With older properties, Pajala says it’s important to understand what the housing company loan has been taken out for and if the project has been completed. If the housing company has taken out a loan for a lift replacement, it doesn’t mean that there won’t be other renovation needs in the future. The housing company may have to take out an additional loan for plumbing renovations in the coming years, for example.

You should always check the housing company’s long-term renovation plans before buying a home.

Pay attention to the repayment schedule and interest rate

Pajala recommends that you find out what the repayment schedule for the housing company loan is and whether you are allowed to make overpayments.

Another important thing for home buyers to note is the interest rate on the loan, so you understand how your charge for financial costs will be affected by a rise or fall in interest rates. You should find out if the housing company has hedged the loan against higher interest rates.

According to Pajala, housing company loans are usually variable-rate loans where the interest rate is either the 6-month or the 12-month Euribor added with a housing company-specific margin.

In terms of both new builds and renovations, the housing company and all its shareholders are jointly liable for the outstanding debt. If a shareholder fails to pay the charge for financial costs, other shareholders may be held liable for their payments.

When is it better to switch from a housing company loan to a personal loan?

Many shareholders prefer to pay off their share of a housing company loan immediately, while others repay theirs at an accelerated pace and some repay theirs over time as part of the charge for common expenses.

If you want to pay off your share of the housing company loan in one go, you can apply for a personal loan to do this. Pajala says you should switch from a housing company loan to a personal loan if the latter offers you better loan terms or more flexibility with repayment.

You can apply for changes to a personal loan during the loan period, which often makes it a more flexible alternative to a housing company loan. The terms of a housing company loan are the same for all shareholders.

Read more about swapping a charge for financial costs for a personal loan.

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