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Home loan collateral

You should think about what kind of collateral is required for a loan and what you can use as collateral already when applying for the loan. Banks require collateral to make sure that the granted home loan is repaid in time.

Homes are the most popular type of collateral

When you buy a home, the home will be the primary collateral for your home loan. In practice, your home will be pledged as collateral for the repayment of the loan. If the loan is taken for a property that will be constructed, the plot and the building to be erected on it usually serve as the primary collateral.

The most used types of collateral are housing company share certificates and mortgages on the property or leasehold, but forest estates, deposits, shares and mutual fund units are used as well. Various asset classes as collateral differ slightly in value. The collateral value of a certain collateral is always calculated on a case-by-case basis.

Home’s collateral value

When you apply for a loan, the bank calculates the collateral values of your home and other collateral available to you. The collateral value of a home is usually 70 per cent of its value, but this depends on, say, the amount of housing company loan on the share certificate or the stage of completeness if the home is under construction. For example, the collateral value of a detached house rises as its construction advances.

How much collateral is needed?

If a regular home loan exceeds 70 per cent of the home’s value, the bank usually needs some other collateral besides the home as collateral for the loan, such as Garantia’s mortgage guarantee, an OP cooperative bank’s loan guarantee, government guarantee for a home loan or a guarantor’s property pledged as collateral. First-time home buyers usually only need a government guarantee on top of the home as collateral for their interest-subsidy ASP loan.

Read more about guarantees for a home loan   

Another person may be asked to pledge their property, such as an apartment or a summer cottage, as collateral for the home loan. If the principal debtor is unable to make the payments, the collateral provider's liability is limited to the pledged property only.

In case you are wondering whether your investments or your parents’ summer house suffice as side collateral, you should contact your bank by making a loan application. In the loan negotiations, your bank will review the need and availability of collateral with you in person. You should make the loan application even if you do not have a clear idea of the collateral available to you, but be sure to make it well in time. Your bank can give you a tentative home loan offer, and you can discuss the collateral and your options in loan negotiations.


The insurance is issued by Pohjola Insurance Ltd.