Capped interest rate Housing Loans

Interest rates have been low and housing loans available at very favourable interest rates for customers for many years. However, interest rates will not necessarily remain low for the entire repayment period.

Nordea Bank now offers its Home Loan with protection against rising interest rates in the form of a capped rate.

Capped interest Home Loan

The capped interest rate Home Loan means that a ceiling is established on the interest rate. If market interest rates rise, the interest rate on your loan will not rise past the upper limit. At a level lower than the ceiling, your interest rate will vary in accordance to changes on the market.

If you have a capped interest rate Home Loan, a small additional margin will be added to your loan interest rate in order to hedge the risk of rising interest rates (i.e., to buy an interest option), but if interest rates experience a sudden rise, your interest rate is guaranteed to remain low. If interest rates stay low, the interest rate on your loan will remain at a lower level.

The capped interest rate Home Loan is available in euros for a maximum 30 years. The interest rate is capped for a two to ten year period. Loan repayments take place as an annuity. The cap on the interest rate can be applied only for loans disbursed in one lump sum.

A capped interest rate or ordinary Home Loan?

When you take an ordinary Home Loan, you forgo the additional margin, but you run the risk of a significant increase in your loan payments if interest rates were to rise suddenly.

How Capped Loan works

For instance, the reference rate may be capped at 4.5%. If such a ceiling is applied, the estimated additional margin will be an estimated 0.7%.

• If your margin is 0.5%, with an additional margin of 0.7% and Euribor 4.363%, the final interest rate on your loan will be 5.563%.
• If the prime rate (Euribor) rises to 4.5%, the interest rate on your loan would rise to 5.7%.
• If the Euribor is at 6.5%, then instead of rising to 7.7%, your interest rate would stay at 5.7%.
• If the Euribor falls to 2.5%, the interest rate on your loan would be 3.7%.

Special agreements are possible in the case of a loan larger than 100,000 euros.
Be worry-free and protect your loan against rising interest rates!

Special situations

• If you would like to repay your loan (partially or completely) before the end of the cap period is going to expire, it may happen that depending on the situation on the money market, you will have to pay contractual compensation for terminating the agreement.
• If you desire a grace period, the bank may request additional fees for keeping your interest rate at the agreed-upon level.
• It is possible to cancel the capped rate agreement during the five-year period as well, paying the bank agreement termination compensation if necessary.

The amount of all compensations depends on the value of the interest rate cap (option) at the given point in time.