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Government guarantee for a home loan and other guarantees

When you need side collateral for your home loan, guarantees are a good option. You can apply for a government guarantee for your home loan and the state will guarantee a part of it. You can also contact your local OP cooperative bank for a loan guarantee or ask another person to guarantee your loan.

Government guarantee for a home loan and first-time home buyer’s ASP loan

Home loans and interest-subsidised ASP loans are eligible for a government guarantee when the home is bought to be used as the permanent residence of the buyer or the family. You can agree on the government guarantee with your bank when applying for the loan.

A government guarantee can be granted when the home loan represents at the most 85 per cent (at the most 90 per cent for interest-subsidised ASP loans) of the purchase price of the home. It can cover at the most 20 per cent (at the most 25 per cent for interest-subsidised ASP loans) of the loan, altogether at the maximum 50,000 euros.

The government will charge a loan guarantee fee of 2.5 percent of the guaranteed amount with the exception of interest-subsidised ASP loans, which are not subject to this fee. In the example below, the guarantee fee would be 425 euros.

Example of a government guarantee for a home loan

The home costs €100,000. The bank grants the buyer an €85,000 loan and the buyer uses €15,000 of savings. The collateral value of the bought home is 70% of its market value, so the loan still needs a guarantee €15,000 (85,000 - 70/100*100,000). The government guarantee can be at the most 20% of the loaned amount, or €17,000 (85,000*20/100), so it covers the needed side collateral. If this was an interest-subsidised ASP loan, the government guarantee could be at the most 25% of the loan, or €21,250 (85,000*25/100).

Because of the act governing the maximum loan-to-value (LTV) ratio, the maximum home loan the bank can grant is 90% (95% for first-time home buyers) of the fair value of the collateral.

Loan guarantee from an OP cooperative bank

Loan guarantees for home loans are subject to a charge and can be obtained from OP cooperative banks when negotiating the loan in connection with loan negotiations. The guarantee can be at the most 50,000 euros and at the most 25,000 per debtor, and its amount decreases as the loan is repaid.

Loan guarantees are an affordable option: the annual charge is 0.9 percent of the remaining guarantee amount, and OP’s owner-customers can pay it with their OP bonuses. They are also more flexible than government guarantees when it comes to using interest rate hedges and changing the repayment plan.

Close relatives as guarantors

Other people may also be asked to pledge their property, such as an apartment or a summer cottage, as collateral for the home loan. They may also be asked to guarantee the loan. When such personal guarantee is used for the home loan, the guarantor pledges to repay the loan if the principal debtor is unable to make the payments. For guarantors, pledging property may be a more sensible option as this limits their liability to a specific piece of property, such as an apartment.