Blog|Bigbank starts issuing home loans with 20-year grace periods in Estonia

Bigbank starts issuing home loans with 20-year grace periods in Estonia

Bigbank entered the Estonian home loan market as a newcomer this August. In addition to the ordinary home loans with annuity schedules, the bank established on Estonian capital offers a home loan with a special schedule, which allows clients to postpone repaying the loan principal for up to 20 years.

Bigbank offers the home loan with a special schedule to families where two people, who are married or cohabiting and raising a child together, apply for the loan together. The borrowers get to choose the period for which they want to have the special schedule. Since the initial loan obligations are smaller with this schedule, it will be possible for the families to cover other obligations at the start of the loan period, such as car leasing.

“The Estonian banking market has become increasingly more consolidated in recent years and competition has therefore decreased,” said Martin Länts, Group CEO atBigbank. “We’ll be issuing a housing loan on the bank’s home market and competing with a product that clearly stands out. 165,000 home loans secured with mortgages have been issued in Estonia. Bigbank’s new product will allow many clients who already have home loans use our loan with a special schedule to refinance their existing loan. We want to continue developing fast and bring new products to the market in Estonia as well as in the other countries we operate.”

Home loans with a special schedule are products suitable for families that want to acquire a home for the long term.
Jonna Pechter

According to Jonna Pechter, Estonian Country Manager at Bigbank, home loans with a special schedule are products suitable for families that want to acquire a home for the long term. “A home loan with a special schedule is granted for up to 30 years and the principal is not due to be repaid for the first 20 years, only interest must be paid. This is suitable for families whose expenses are initially high for one or another reason, but whose lives are stable,” said Pechter.

“The small loan repayments of the special schedule during a period of high expenses are good for families who also have to repay their car leasing or another loan,” added Pechter. “The special schedule allows them to pay less whilst they have other loans to repay, and increase the amount as soon as the other loans have been paid off. The special schedule also allows them to cope when their children are small and their expenses are already high – they have to spend less on the loan repayment and can start repaying more when they return to work. For example, when 100,000 euros is borrowed for 30 years with an interest of 2.5% + Euribor and a grace period is taken for 10 years, the initial monthly payment in the 10-year period will be 201 euros and the monthly payment in the last 20 years will be 531 euros.”

According to Jonna Pechter, this product is certainly not meant for today’s hobby or small investors who buy up flats with home loans and earn rent income on them. “In the case of a loan with a special schedule, it must be kept in mind that the monthly payment is considerably smaller than under an annuity schedule only during the interest-only period, but it will be considerably higher during the final part of the loan,” said Pechter. The total amount of loan interest paid in the case of this schedule is bigger, but it allows many families to buy their own home instead of renting, and the value of the home will probably increase in the long term.”

“Estonians believe in property and most people dream about owning their own homes,” said Pechter. “This faith is also supported by the interest rates that have been low for a long time and the negative Euribor. Although the Estonian property sector has survived some serious crises, they haven’t managed to shake the faith of Estonians either, as property prices have gone up in the long term. The loan with a special schedule is a new opportunity on the Estonian loan market and, similar to all other long-term financial obligations, borrowers should seriously weigh their options before they take the loan.”