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A loan against real estate collateral or a mortgage loan may be a sensible solution for a real estate owner who wishes to fund some of their outlays with the bank’s help. As a rule, interest rates on loans against real estate collateral are significantly lower than on loans without collateral; however, unlike in the case of home loans and like in the case of small or consumer loans, the bank imposes no constraints on how a loan against real estate collateral is used.

We enlisted the help of Karin Ossipova, who heads the business line of loans against real estate collateral at Coop Pank, in order to find out what the differences between a loan against real estate collateral and a home loan are as well as who and what they are designed for.

How is a loan against real estate collateral different from a home loan?

A loan against real estate collateral or mortgage loan is similar to a home loan in that real estate is used as collateral for both loans. In terms of their purposes, however, the loans are different: whereas a home loan is designed for buying a home, the options for using a loan against real estate collateral are broader.

What is a loan against real estate collateral used for?

In the case of a loan against real estate collateral, the borrower themselves can decide how to use the loan funds – no matter whether it is renovating one’s residence, purchasing additional real estate, buying new furniture or household appliances, starting a business, growing an existing business, going on a long trip or making any other dreams come true.

What is the amount and repayment term of a loan against real estate collateral that may be sought?

The amount of a loan against real estate collateral ranges from 5000 to 100 000 euros and has a maximum repayment term of 20 years.

Who is a loan against real estate collateral designed for?

A loan against real estate collateral is suitable for people who have real estate in Estonia and are willing to pledge it as collateral for the loan. Of course, a borrower also has to have a regular income to be able to make monthly loan repayments. A loan applicant has to be at least 21 years of age and a citizen of the Republic of Estonia or a person entitled to reside in the European Union or holding a permanent or fixed-term residence permit in Estonia.

How high does the income of a loan applicant have to be?

To be able to get a loan, regular monthly income of 450 euros at a minimum is required. Income is considered to include both pay, remuneration earned by a management board member, old-age pension and revenues from business activities (including as a self-employed person) as well as family benefits, rental income, maintenance support and scholarships. A loan may be sought also by a person working and getting paid abroad. If a person has a new job, we recommend waiting until the completion of the trial period and then apply for a loan.

May a loan applicant also have any other financial obligations or loans?

The existing plus proposed monthly loan repayments in total should not exceed 40% of the average monthly income. To be able to obtain a loan, it is important the applicant should have no current payment defaults, and any payment defaults should have ceased at least 9 months ago.

Is a loan against real estate collateral suitable for owners of micro or small enterprises?

Yes, it is. First, we consider a loan applicant’s income to include revenues from business activities, that is, dividend or pay, but also any remuneration for serving as a management board member. Second, we analyse the financial situation of the company. The value of the assets of the company should be at least 5000 euros, with an average turnover of at least 2000 euros per month.

May the real estate used as collateral already have a mortgage?

Real estate used as collateral for a loan at Coop Pank may be previously encumbered with a mortgage in favour of Coop Pank (Eesti Krediidipank).

Is a real estate valuation report required?

As a rule, a real estate expert assessment is required. In the case of smaller loan amounts or when standard-design apartments are used for collateral, we make loan decisions also without expert assessments. Before an agreement is concluded, however, the bank has to be provided with an expert assessment of the market value of the collateral.

What would be the minimum value of real estate in order to be able to apply for a loan?

There is no set minimum value for collateral; however, it should be taken into account that the maximum loan amount may reach 75% of the value in the expert assessment of the real estate. For example, if real estate has been valued at 50 000 euros, the maximum loan amount may be 37 500 euros. The specific percentage and loan amount, however, depend on the location, liquidity and structural condition of the collateral, as a result of which every loan decision is an individual one.

What is the interest on a loan against real estate collateral?

Interest on a loan against real estate collateral is linked to 6 months’ Euribor and is 4.5 per cent or higher. For example, in the case of a loan of 20 000 euros with a repayment term of 15 years, the monthly repayment would be 153 euros. Subject to a one-off agreement fee of 1% of the loan amount, or 200 euros.

Why is it advantageous to apply for a loan from Coop Pank?

The advantages of Coop Pank are its speedy decision-making process and its attractive loan interest. What also definitely sets us apart is our competence in providing advice, both when it comes to financing and aspects related to collateral. We are prepared to analyse every loan application individually and in depth also if incomes originate in micro or small enterprises or if the applicant has had objectively justified issues in their payment history.

For additional information about a loan against real estate collateral, go here.

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