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Articles about real estate in Estonia » Mortgage or Home Loans » Choice between a mortgage, leasing a flat, or a loan secured by real estate

Choice between a mortgage, leasing a flat, or a loan secured by real estate

Mortgage or Home Loans / Legal intricacies in real estate / Expert opinion / Cheat sheet for shoppers
21.01.2024
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Choice between a mortgage, leasing a flat, or a loan secured by real estate

When choosing a method of financing the purchase of housing in Estonia, potential buyers are faced with several options: a mortgage loan, leasing a flat, or obtaining money from a bank secured by other real estate. Let's consider each of these options to understand what might be more beneficial in specific circumstances.

Mortgage loan

A mortgage is a common method of financing for purchasing housing. In this case, the bank provides a loan for a long term secured by the acquired real estate. In Estonia, mortgage loan conditions differ with favorable interest rates and the possibility of early repayment without penalties. The key point is the down payment - typically ranging from 10 to 30% of the housing cost. The higher the down payment, the lower the interest rate will be.

Leasing a flat

Leasing is an alternative method of acquiring housing, where a person regularly makes leasing payments for the right to use residential space with the subsequent option to buy it. This can be advantageous for those who cannot afford a significant down payment for a mortgage. However, it should be taken into account that the total amount of payments over the leasing period may exceed the cost of a mortgage loan due to additional fees and services.

Loan secured by other real estate

If the buyer already owns property, they can consider the option of obtaining a loan secured by the existing real estate. Such a loan may have a lower interest rate compared to a regular consumer loan due to the provided collateral guarantee. However, it is necessary to be aware of the risks associated with the loss of the pledged property in case of payment problems.

Analysis of conditions

Before choosing between a mortgage, leasing, or a loan secured by real estate, it is necessary to carefully assess your financial situation:

  • What is your income? A high income level increases the likelihood of approval for more favorable conditions for a mortgage loan.
  • How much time are you willing to wait before making a purchase? Time may be needed to save for the down payment.
  • What assets do you have? Having other property allows you to obtain a cheap loan secured by its collateral.
  • Are you willing to risk your existing real estate? Non-payment of someone else's obligation can result in the loss of the pledged property.
  • What interest rates do banks offer? It is important to study the current market and choose the most favorable conditions.

The choice between these financing methods depends on the specific financial strategy of the buyer and their assessment of their own capabilities. For example, if the goal is to minimize initial investments, leasing may be the optimal choice; if the goal is to minimize overpayment on interest through a larger down payment, a mortgage should be considered.

Conclusion

In conclusion, it can be noted that there is no definitive answer as to which of the listed options will be the best solution for each individual case in Estonia. When making such a significant decision, it is important to carefully evaluate all the pros and cons of each financing method, and consulting with specialists will be helpful in determining the most reasonable course of action.

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