Jussi Pajala, the CEO of Nordea Mortgage Bank, tells us which statements about home loans are true and which are false.
Statement: You can’t buy a first home without any savings of your own.
True: This statement is true, as you can obtain a loan for 95% of the price of your first home, but you have to finance the remaining 5% in some other way, such as with your own savings. You also have to ensure that the collateral for the loan is sufficient. With an ASP loan, you must save at least 10% of the price of the home.
Statement: You can’t buy a single-family house as your first home.
False: You can buy a single-family house as your first home but it isn’t very common. The main thing is to make sure you can afford it. The collateral value of the home you buy is usually 75% of its price, which means you need to provide additional collateral worth 25% of the price. If the property is in poor condition, its collateral value may be lower, so you would need more additional collateral. If you move into a single-family house, you must also be able to maintain and renovate it with your income or savings.
Statement: There’s a maximum limit on a home loan for buying your first home.
True: The maximum amount of the loan is always determined by your payment ability. If you have lots of savings and income and your collateral is in order, there’s nothing to prevent you from buying a bigger or more expensive home. However, with ASP loans, there are maximum limits determined by the location of the home.
Statement: You should buy your first home at an early age.
True and false. There’s no right or wrong answer to this one. What you should do is consider the best option for your personal circumstances, be it a rental apartment or your own home. Owning a home is financially worthwhile, because you accumulate wealth as you repay your loan. The younger you are when you buy a home, the longer you have to accumulate home equity.
Statement: A first-time home buyer should consider an interest rate cap offered by the bank on their home loan.
True: Yes, you should definitely consider taking an interest rate cap. This doesn’t apply to first-time home buyers alone, but anyone considering buying a home. All home loans are put to a stress test that measures the borrower’s repayment ability with an interest rate of 6% over a loan period of 25 years. A suitable interest rate cap can guarantee a lower interest rate, at a maximum of 5% for example, ensuring that the reference rate never exceeds this threshold during the validity of the cap. This would leave the borrower with extra cash to spend as they like.
How to apply for a home loan