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April 21, 2017

Important Information about Home Loans in Finland

Finland is located in Northern Europe. It's a sovereign state with a population of 5,554,007 people, based on 2017 figures.  This Nordic nation has land borders with Russia (to the East), Norway (to the North) and Sweden (to the Northwest). While it's eighth largest in size of all of the EU (European Union) nations, it has the lowest population of all of them!

If you're interested in buying a home or condo in Finland and you'd like to secure financing in the form of a mortgage loan, then you'll appreciate our detailed guide. We're going to review some important facts about the housing market in Finland, as well as a lot of vital data about the country's mortgage loan system and mortgage loan market. Our goal is to make things easier for you by providing you with all of the facts that you need in one convenient place.

Are Homes in Finland Pricey?

At present, the housing market in the country is stable. However, construction activity is increasing and the amount of real estate transactions is also starting to rise. During the final quarter of 2016, the median average cost of older homes went up by 1.2 percent. It currently costs about 2,295 Euros per square meter for an older home or flat in Finland. This equates to 2,424 American dollars per square meter. Costs of older homes and flats in the Greater Helsinki area are a lot higher, with prices per square meter currently at 3, 863 Euros. This equates to $4,130 per square meter.

A 2016 survey by The Economist Intelligence Unit ranked Helsinki as one of the world's nine most livable cities, which goes a long way towards explaining why older dwellings in the region fetch higher prices than older homes which are outside of Greater Helsinki! Finland was one of only two EU cities on the list.

In 2016, new dwelling prices rose by 1.6 percent, except in Helsinki, where they fell by 3.9 percent. Clearly, older dwellings are still dwellings of choice among many Helsinki residents. However, this is not the only explanation. Increases to housing starts for new construction in Helsinki also help to keep new home prices in check! There is more competition out there now and sellers have to price their new homes competitively in order to beat out other home builders.

How Are Interest Rates for Mortgages?

When it's time to apply for a mortgage, interest rates become a big deal. Shopping around for the best interest rate is always a smart way to begin the process of finding the right lender. Right now, interest rates in this Nordic nation are in decline, as they have been over the past years.

To put things into perspective, the average interest rate in September 2011 was 2.54 percent. In September of 2016, it was 1.12 percent! As you've probably gathered, this is an extremely low rate of interest. This is a good thing for Finnish borrowers and existing homeowners.

However, there is a downside, and this is the fact that most mortgage loans in the country are variable rate loans. This means that interest rates on these home loans will rise or fall depending on interest rate fluctuations. A lot people aren't locked into the lower interest rate for longer periods of time. A lot of Finnish homeowners carry a lot of debt. Their homes are usually their primary sources of debt. In other words, they owe a lot on their mortgages and need to use a lot of their monthly income in order to pay for their mortgages.

If interest rates for home loans in Finland begin to rise, those with variable rate mortgages may struggle to pay higher monthly mortgage payments. This situation would echo one circumstance which triggered the USA subprime mortgage crisis in 2007, whereby those with subprime mortgages were unable to meet their obligations due to rising interest rates.

They had difficulty refinancing their loans due to a sharp decline in housing prices, so they were stuck with variable rate mortgages and whopping mortgage payments.

Many people defaulted on their home loans. With this potential instability in mind, it will be positive if interest rates do stay low over the long term. However, anything can happen. This is why you should take care when selecting your mortgage type. If you're going to go for a variable rate home loan in Finland, make sure that you'll be able to handle your mortgage payments if interest rates do rise. Some people in Finland probably won't be able to. 

Basic Facts About Home Loans in Finland

Banks provide approved applicants with home loans in Finland. Mortgage loan monies may be utilized in order to buy homes or to gain occupancy rights to homes. They may also be utilized in order to build or renovate homes. The banks want to see financial stability from their mortgage loan applicants. They look for the same things that banks all over the globe do. It's all about choosing to approve applicants who have the means to repay their mortgage debts. It's about minimizing risk to the banks.

For years, banks in Finland have been increasingly cautious about who they approve for home loans. In particular, expats may find it more difficult to access mortgages. Additional red tape will need to be cut through. However, it's not impossible for an expat to get a mortgage loan in the nation. It's just harder than it is for a typical Finnish resident. Despite a cautious attitude overall, the banks in the country don't turn away applicants if they have temporary employment, as long the the niche of industry for this temporary employment is robust and the applicants seem creditworthy in other respects.

Owning a home in Finland is a smart option as it's an affordable way to live. Currently, low interest rates ensure that loan servicing expenses are very reasonable. For this reason, home or flat ownership is often the most practical decision from a financial standpoint. As well, buying a home or flat in Finland will provide you with tax benefits. The interest that you pay down may be deducted at tax time. Also, capital gains will be tax exempt, as long as you've lived in the home for 24 months.

How to Apply for Home Loans in Finland

It's best to get in touch with bank service representatives in order to book meetings which pertain to your desire for a home loan. Once you arrive at an interview of this type, you may make a loan application which is formal. Again, we recommend shopping around online first in order to see what various Finnish banks have to offer in terms of mortgage loan interest rates and conditions. Go for the lowest interest rate and also consider the repayment terms. Every detail is important. The more homework and research you do before you choose a bank, the better...

Finland has a range of government banks (such as the Bank of Finland), commercial banks (Atkia Savings Bank, Helsinki OP Bank, etc.), foreign banks (Carnegie Investment Bank, Citibank, etc.) and co-operative banks (Lappo Andelsbank, Pulkkilan Osuuspankki, etc.). There are plenty of choices out there!

General Tips for Home Loan Applicants

In addition to considering interest rates and loan conditions, consider extra fees when you are comparison-shopping for a home loan. In some cases, the fees vary widely from bank to bank. You'll benefit from considering this variable while you're comparing mortgage loan options from different financial institutions. As well, be aware that financial institutions in the country want to help prospective homeowners. For this reason, they have service representatives who are able to discuss tax issues with home loan applicants. For example, these reps will let home loan applicants know which documents must be submitted to the national tax authority.

If you're an expat who speaks English and you're not fluent in Finnish (it is a notoriously hard language to master), make sure to have every document which relates to your mortgage loan translated into your own language. The bank may not suggest translation of all documents. Take it upon yourself to get it done. It's to your benefit to understand every facet of your mortgage loan. Getting prepared before you apply will help your chances. Since the bank's home loan officer will want to see if you're able to handle loan repayment, as well as your other monthly expenses, you will need to prove that you're worthy of credit. You may do this by disclosing your earnings, sharing information about your expenses and disclosing your debts.

Find supporting paperwork and take it with you when you visit the bank. You'll be able to offer the information that the bank loan officer needs right away. The bank loan officer will utilize a formula in order to determine your repayment ability. As well, he or she may do a credit check on you. If you have a record of default, you may be denied a mortgage.

Typically, the home which is being purchased will serve as collateral for the home loan. Collateral value is usually about seventy to seventy-five percent of a property's value. If you need more financing than seventy or seventy-five percent, you may access a state guarantee for the purchase of the home. It's also possible to secure lainat (the Finnish word for "loans") via other types of assets, such as securities or deposits, or any personal assets which may be easily liquidated.

We Hope This Guide Was Helpful

We've tried to provide you with tons of helpful facts. If you want to check out other resources, we think that one of the best options is Also, Kauppalehti magazine offers a lot of interesting and topical information about this subject. 

Edited by Alicia Young
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