Home construction loan

You can fill in the loan application online even if you are not yet our customer. When you fill in the loan application, you do not yet need to know the exact price of the new home or other such details. The loan application is nothing more than an invitation to make an offer ‒ it does not bind you to draw down the loan.

In the loan application, we will ask you the following information:

• your income, expenses and debts and their monthly charges, and those of other loan applicants, if any
• information on your wealth.

After you have sent your application, we will contact you the following day.

Sufficient repayment capacity is required for granting the loan. We will check your credit history from the credit information register of Suomen Asiakastieto Oy when you apply for the loan.

Collateral

The collateral for a loan for building a detached house is usually the property being built, or the lease on the plot and the detached house located on the plot.

Although the collateral value of the property being built increases as the construction work progresses, you will initially usually need other collateral too, such as your current owner-occupied home, investment assets or other assets. You can apply for the bank's loan guarantee or a government guarantee as side collateral.

You can apply for OP’s credit guarantee to be used as side collateral for your home loan. The maximum amount of the credit guarantee is 25,000 per applicant. Alternatively, you can apply for a government guarantee to be used as side collateral.

Renovations include construction, improvement and renewal that modify e.g. foundations or bearing structures, roof, heating or ventilation systems, water systems or drain pipe fittings, the property's electric system or the purpose of use of premises (such as transforming a walk-in closet into a sauna).

Home improvement includes painting, wallpapering and renewing home appliances and fittings such as a fridge, toilet furniture or kitchen cabinets.

Need a loan for renovation and home improvement?

First apply for a home loan for renovation (for your home, holiday home or buy-to-let home). After you have sent your loan application, we'll contact you and you can then also apply for a home improvement loan.

The act governing the loan-to-value ratio came into force on 1 July 2016. The ratio applies to loans granted for the purchase or renovation of a home for which the home is lodged as collateral. The purpose of use of the home is of no significance, i.e. the law applies not only to loans taken out to buy one's own permanent home but also to those taken out to by a buy-to-let home and a holiday home.

The loan-to-value, or LTV, ratio means the ratio of the loan to the current value of the collateral lodged as security for the loan at the time of its granting. In calculating the LTV ratio, all real security placed by the debtor or another person, such as homes, deposits and securities, can be taken into account as collateral. A personal guarantee, for instance, cannot be taken into account.

The LTV ratio is a macroprudential instrument that helps the authorities to curb excessive household leverage and to prevent an increase in home prices and mortgage lending considered excessive, or other risks threatening the stability of the entire financial system.

In a normal situation, a loan may account for a maximum of 90% of the collateral's current value. For a home loan taken out by a first-time home buyer, the maximum is 95%. The Financial Supervisory Authority may reduce above maximums by no more than 10 percentage points to limit an exceptional increase in risks to financial stability. As of 1 July 2018, the Financial Supervisory Authority has decided to tighten the LTV ratio for loans granted for other than first-home purchases by five percentage points from the normal 90% to 85%. The LTV for loans granted for the purchase of a first home was maintained at the normal level at 95%.

For example, if a home buyer secures his/her home loan only with the home to be bought, he/she must now have saved at least 15% (5% for first-time home buyers) of the purchase price. It is possible to reduce the need for personal savings by providing other real security in addition to the home.
 
Nevertheless, the LTV ratio is based on the law and thus binding on banks – it can be exceeded only in cases specifically permitted by the Financial Supervisory Authority, such as temporarily in situations where homes are exchanged. In addition to the LTV ratio, the bank’s own collateral requirements may affect the amount of collateral needed for the loan.
 
Example of calculating the LTV ratio: The home sales price is 100,000 euros. The home buyer's self-financed amount is 20,000 euros. He/she needs a home loan worth 80,000 euros. In this case, the LTV ratio is 80% (80,000/100,000 *100), which is compatible with the law.
 
As the bank normally accepts 70% of the home’s current value as collateral, the collateral shortfall after pledging the home is 10,000 euros (80,000-70/100* 100,000), which usually has to be covered with additional collateral. OP’s loan guarantee, for example, could be used as additional collateral in this case.

Loan costs consist of the reference interest rate, the bank's markup and service fees related to loan repayment. In addition, the loan is subject to a processing charge when it is drawn down.

A portion of your home loan interest is tax-deductible, which reduces the amount of taxes you pay.

When you think of the amount of loan you wish to raise, you should reckon with not only the purchase price but also any other costs that you may incur, such as moving costs and transfer tax related to home buying. For instance, home buying is usually subject to such a tax (2% of the purchase price on shares in a housing cooperative and 4% of real properties).

We agree with you on a suitable monthly instalment and repayment method for your loan. The recommended maximum loan term is 20 years. The monthly loan repayment instalment should account for a maximum of 35% of your monthly net income and your repayment capacity should also tolerate a rise in interest rates. It is advisable to determine the size of your monthly instalment in such a way that you can also save some money for your future needs. If needed, you can also have a repayment holiday during which you will pay only interest on your loan.

The total home loan interest rate is made up of the reference interest rate and the bank's markup on the loan (margin). If you choose, say, the 12-month Euribor as the reference rate for your home loan, you will always know your total loan interest rate for the next 12 months.

OP-prime is another option for your loan's reference rate, the changes of which we announce to our borrowers at least 14 days before the change takes effect.

The most common loan repayment methods are equal payments and variable annuities.

Securing loan repayment

Anything unexpected can happen during a long loan term. Loan payment protection insurance is the most important insurance for home loan borrowers.  You can take it out for both a new or an existing loan – as individual cover or joint cover together with your co-borrower.

The insurance helps you cope with paying monthly loan repayment instalments if your fall ill or lose your job. The insurance pays off the outstanding loan if the insured person dies.

Owner-customer benefits

• As an owner-customer, you get 45% off on a current account, OP eServices and OP-Visa card. For owner-customers, the cost is €2.95/month (€3.95 as of 1 April 2020). Normal charge €5.45/month. If you are under 26 years of age, you receive our daily banking services free of charge.
• As our owner-customer, you can choose a long-term fixed interest rate for your new home loan throughout the loan's term, up to 25 years. This is how you can ensure that your interest charges for your home loan will remain unchanged throughout the loan term.

OP bonuses

As an owner-customer, you will earn OP bonuses for example from:

• loans
• savings and investments
• funds in accounts
• purchases you have paid for with OP-Visa credit
• insurance premiums for home, family and motor vehicle policies

OP bonuses are used for the bank’s service charges and insurance premiums.