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The Local _ Finance _ Mortgage & Interest & Amortization

Posted by: AlexPopov 2.Jan.2020, 01:34 AM

Hi, I recently accepted a job offer in Stockholm. I will move in a few months. I noticed that purchasing an apartment is easier and cheaper than renting one. I checked some online calculators but I cannot understand the mortgate system. Let me summarize:

* One of the online calculators I use: https://www.skandia.se/lana/bolan/#rantesnurra

* I know and understand the amortization requirements with respect to downpayment to price ratio (15%, 30%, 50%)

* For example:

Price of the apartment = 3M SEK
Downpaymet = 1.5M SEK
Loan = 1.5M SEK
Loan / Price = 50%
Legal Amortization Requirement = 0

https://www.skandia.se/lana/bolan/#rantesnurra calculates that

Effective Interest Rate = %1.61
Interest Amount per Month = 2000 SEK (before tax reduction)
Amortization = 0

The calculator does not indicate the loan duration so I assume it is 50 years. If I pay 2000 / month for 50 years then I pay only 2000*12*50 = 1.2M SEK
But the loan principal was 1.5M SEK. So I assume that I will start paying amortization some years after I take the loan. But when? I could not find any information regarding that.

I would really appreciate any help you could provide.


Thanks in advance,
Alex.


 
 

Posted by: Anders 2.Jan.2020, 10:53 AM

Those 2000 SEK/month is just interest, your loan will in theory stay forever at 1.5MSEK since amortization is 0.

But you need to apply for a period of no amortization at Skandia. Max 5 years. After that you can apply again. I'm on my second period now, this time I just asked them on the phone and they checked the legal requirements and said there weren't any and asked if I wanted a new period for 5 years.

I guess that the majority of loans are fully repaid when the apartment (or rather bostadsr?tt) is sold. Not by amortization.


Posted by: AlexPopov 2.Jan.2020, 12:43 PM

Anders, thank you very much for responding. I am having difficulty to understand this.

**** "your loan will in theory stay forever at 1.5MSEK since amortization is 0."
Let's assume that I managed to pay 2000 SEK / month fixed interest for 50 years and completed interest payment. What then? Will the bank not demand the loan principal?

**** What If I die before or after the loan period (50 years) is completed and leave the apartment to my heir?


**** What If I sell the apartment in 30 years? The bank gets the loan but what about the remaining interest?

**** Let's assume that I earned a lot of money 10 years after the mortgage beginning and decided to re-pay the amortisation at once even I do not have to. I pay 100% of the amortisation (1.5M SEK). I have paid 2000*12*10=240K SEK so far for the interest. What about the remaining interest? Do the banks apply fine If I pay all the loan at once before the end of the mortgage?

Thanks in advance,


Posted by: Anders 2.Jan.2020, 02:03 PM

Swedish loans aren't as "locked" as I guess they are in many other countries. There is no loan duration.

You can lock your interest rate for a period of time, often up to 10 years. Then you pay the same interest rate for these 10 years, but you are also obliged to pay that interest for 10 years. Many Swedes only lock for 3 months since that has historically been cheaper and you are free to move your loan to another bank. If you lock for 3 three months you get a new interest rate after 3 months so it will be a more volatile cost. After 3 months you are free to do whatever you want, get a new bank, repay a part or all of it or lock the interest for a longer time or just (automatically) renew for a new 3 month lock.

It is possible to get rid of the lock-in to if you pay the bank's losses (r?nteskillnadsers?ttning, compensation for difference in interest or something).

Amortization is often specified by the time the loan is paid, like 25 or 50 years.

To have a completely known cost for your loan you can have the same interest lock in period and amortization period. Then you pay like 5000 SEK/month for 30 years and then the loan is paid. Danske bank just launched a loan like this, but I think they are the only one that offers such loan in Sweden. Interest rate is 2,89%, the advantage is that your economy is checked against the cost (interest+amortization) of the loan, for the usual 3-month loan your economy is checked against a 7% imaginary interest rate, even if that is unlikely to happen.

QUOTE (AlexPopov @ 2.Jan.2020, 12:43 PM) *
**** "your loan will in theory stay forever at 1.5MSEK since amortization is 0."
Let's assume that I managed to pay 2000 SEK / month fixed interest for 50 years and completed interest payment. What then? Will the bank not demand the loan principal?

Yes, they will demand those 1.5MSEK back but first offer you new terms on the loan (but you probably won't find 50 years fixed interest, you can find 10 years and Danske banks 30 year offer). Your screenshot was with a 3-month interest rate.

QUOTE (AlexPopov @ 2.Jan.2020, 12:43 PM) *
**** What If I die before or after the loan period (50 years) is completed and leave the apartment to my heir?

Basically your heir needs to get a loan or move.

QUOTE (AlexPopov @ 2.Jan.2020, 12:43 PM) *
**** What If I sell the apartment in 30 years? The bank gets the loan but what about the remaining interest?

**** Let's assume that I earned a lot of money 10 years after the mortgage beginning and decided to re-pay the amortisation at once even I do not have to. I pay 100% of the amortisation (1.5M SEK). I have paid 2000*12*10=240K SEK so far for the interest. What about the remaining interest? Do the banks apply fine If I pay all the loan at once before the end of the mortgage?

Depending on the lock-in period, you might to have to pay r?nteskillnadsers?ttning. But if you're only within a 3-month period I guess they don't bother. If you got the money from somewhere, it is probably cheaper to just wait until your lock-in period is over and then pay the loan back.

Posted by: AlexPopov 2.Jan.2020, 03:37 PM

WooW! This is really different than in my country Russia.

May I simplify like below? (please assume that "loan" is a product rather than money borrowed)

**** If I make a down-payment of 50% or more; then I do not have to buy the loan. I can just rent it for lock-in periods. Interest is the rental cost of the loan.

Posted by: Anders 2.Jan.2020, 05:06 PM

QUOTE (AlexPopov @ 2.Jan.2020, 03:37 PM) *
May I simplify like below? (please assume that "loan" is a product rather than money borrowed)

**** If I make a down-payment of 50% or more; then I do not have to buy the loan. I can just rent it for lock-in periods. Interest is the rental cost of the loan.

That's correct!

Posted by: john.boy 3.Jan.2020, 12:27 AM

QUOTE (AlexPopov @ 2.Jan.2020, 12:43 PM) *
**** What If I die before or after the loan period (50 years) is completed and leave the apartment to my heir?

The bank can ask for the loan to be repaid from proceeds from selling the apartment. Most often they will give a chance for the heir(s) to repay the debt as a forced selling often gives lower price than a normal sale, i.e. The bank is more likely to recover the total amount.

What you could consider is taking out a Life Insurance policy that is of the same value as the outstanding loan, in which case upon death the loan would be repaid from the insurance. And keep in mind also that occupational group pension schemes often also include a portion for life insurance, check with your company scheme as to what amount that is. In Sweden it is most common to name your children as beneficiaries than a spouse. (probably because of the high divorce rate!)

Posted by: Svedallas 3.Jan.2020, 02:22 AM

You need permanent employment contract and visa.

Otherwise, no bank will risk giving any type of loan.

Posted by: AlexPopov 3.Jan.2020, 01:31 PM

I guess I will move in March or April. May I apply for a loan commitment immediately upon receiving the first paycheck? Is there a limitation? For example, here in my country a bank will demand for the last 3 consecutive paychecks.


QUOTE (john.boy @ 3.Jan.2020, 12:27 AM) *
In Sweden it is most common to name your children as beneficiaries than a spouse. (probably because of the high divorce rate!)

Nice ! Nobody wants to get divorced but It is a reality..

Posted by: Svedallas 3.Jan.2020, 06:05 PM

QUOTE (AlexPopov @ 3.Jan.2020, 01:31 PM) *
I guess I will move in March or April. May I apply for a loan commitment immediately upon receiving the first paycheck? Is there a limitation? For example, here in my country a bank will demand for the last 3 consecutive paychecks.



Nice ! Nobody wants to get divorced but It is a reality..


No.

You will need to live at least minimum one year with a permanent job contract and have Swedish bank statements to show you can sustain yourself.

If you get fired, the bank is at a loss. They need security.

Posted by: AlexPopov 6.Jan.2020, 12:56 PM

Thank you all for your answers. I would have some more questions regarding purchasing process. I am not sure If I need to open a new topic..

* As far as I read, a contract of sale is signed by all parties, the seller, the buyer and the broker. Then, the housing association confirms the sale. It may deny though..
* It sounds scaring to rely on only a contract.
* Is there any official confirmation of the sale?
* What about title deed? Is it not issued or when is it issued?
* Are the any tricks regarding the contract that I must be aware of?
* Who prepares the contract? Is there a template?
* What if the housing association denies the agreement?
* When should I make the payment?

To sum up, how can I obtain a secure purchasing process ?

Many thanks in advance for supports.

Posted by: Svedallas 7.Jan.2020, 09:27 PM

QUOTE (AlexPopov @ 6.Jan.2020, 12:56 PM) *
Thank you all for your answers. I would have some more questions regarding purchasing process. I am not sure If I need to open a new topic..

* As far as I read, a contract of sale is signed by all parties, the seller, the buyer and the broker. Then, the housing association confirms the sale. It may deny though..
* It sounds scaring to rely on only a contract.
* Is there any official confirmation of the sale?
* What about title deed? Is it not issued or when is it issued?
* Are the any tricks regarding the contract that I must be aware of?
* Who prepares the contract? Is there a template?
* What if the housing association denies the agreement?
* When should I make the payment?

To sum up, how can I obtain a secure purchasing process ?

Many thanks in advance for supports.


No loan until you have satisfied the minimum residency and employment requirements in Sweden.

Posted by: bonviveur 8.Jan.2020, 09:40 AM

QUOTE (AlexPopov @ 6.Jan.2020, 12:56 PM) *
Thank you all for your answers. I would have some more questions regarding purchasing process. I am not sure If I need to open a new topic..

* As far as I read, a contract of sale is signed by all parties, the seller, the buyer and the broker. Then, the housing association confirms the sale. It may deny though..
* It sounds scaring to rely on only a contract.
* Is there any official confirmation of the sale?
* What about title deed? Is it not issued or when is it issued?
* Are the any tricks regarding the contract that I must be aware of?
* Who prepares the contract? Is there a template?
* What if the housing association denies the agreement?
* When should I make the payment?

To sum up, how can I obtain a secure purchasing process ?

Many thanks in advance for supports.

sale is done by real estate agent, nothing to worry about as he is fully responsible by law to check all the paperwork and title deed arangement. if you buy with cash, money is transfered to agency special account just for that and when all the paperwork is done agent makes a transfer to sellers account.
there is a posibility to do a sale by seller directly, then you should be carefull as responsibility of checking all documents is on you.

Posted by: Anders 8.Jan.2020, 08:51 PM

If it just a bostadsr?tt there is no title deed. It is just a "license" to live in an apartment. You don't own a single molecule.

The contract should you state that it is invalid if membership is denied by the housing association.
An optional clause can give you the right to cancel if you don't get a loan. You might need to ask for this clause to be included. I've heard about people calling the bank and get an ok before signing the contract, but then still was denied a loan (because the apartment was overpriced). Make sure you get such important from the bank in writing, or just make sure the clause is included the contract to be safe.

The first step in the process (before you visit a showing) is to get a l?nel?fte ("loan promise") from a bank. It will show that you can get a loan of a particular size. Without it, real estate agents will not take you seriously.

Posted by: AlexPopov 9.Jan.2020, 09:17 AM

QUOTE (bonviveur @ 8.Jan.2020, 10:40 AM) *
sale is done by real estate agent, nothing to worry about as he is fully responsible by law to check all the paperwork and title deed arangement. if you buy with cash, money is transfered to agency special account just for that and when all the paperwork is done agent makes a transfer to sellers account.
there is a posibility to do a sale by seller directly, then you should be carefull as responsibility of checking all documents is on you.

It is a relief. As I understand purchasing process is clear and more or less straight forward.


QUOTE (Anders @ 8.Jan.2020, 09:51 PM) *
If it just a bostadsr?tt there is no title deed. It is just a "license" to live in an apartment. You don't own a single molecule.

The contract should you state that it is invalid if membership is denied by the housing association.
An optional clause can give you the right to cancel if you don't get a loan. You might need to ask for this clause to be included. I've heard about people calling the bank and get an ok before signing the contract, but then still was denied a loan (because the apartment was overpriced). Make sure you get such important from the bank in writing, or just make sure the clause is included the contract to be safe.

The first step in the process (before you visit a showing) is to get a l?nel?fte ("loan promise") from a bank. It will show that you can get a loan of a particular size. Without it, real estate agents will not take you seriously.

I know that I do not own the apartment. I hire it permanently from BRF where I am a natural member. Applying for a loan promise will be the first thing to do as soon as I'll receive my personnel number in Sweden. Is there a way not to pay to the seller before the BRF makes its decision or organize it simultanously? Although I guess denial of a purchase is very very rare, It does not make sense to run after my own money that I gave to the seller recently.


Posted by: ChocOwl 9.Jan.2020, 07:14 PM

QUOTE (AlexPopov @ 6.Jan.2020, 12:56 PM) *
* What if the housing association denies the agreement?

The brf stadgar (bylaws) will have info on who will not be accepted as a member. The stadgar should be included in the ad for the apartment so you can check them. It's quite difficult for a brf to refuse your membership application if your credit check is OK.

QUOTE (AlexPopov @ 9.Jan.2020, 09:17 AM) *
I know that I do not own the apartment. I hire it permanently from BRF where I am a natural member.

That's not really what a brf is. It is not a separate entity from which you rent an apartment, although it may feel that way. A brf is owned by its members. The brf is run by its members. In order for the brf to run well, many members need to contribute by being on the committee or doing stuff to keep things running smoothly. Some tasks can be outsourced of course, but the more money spent by the brf buying services (e.g. lawnmowing), the higher the monthly fee. So it is in everyone's best interest that everyones helps out.

Posted by: Anders 9.Jan.2020, 07:24 PM

QUOTE (AlexPopov @ 9.Jan.2020, 09:17 AM) *
Is there a way not to pay to the seller before the BRF makes its decision or organize it simultanously? Although I guess denial of a purchase is very very rare, It does not make sense to run after my own money that I gave to the seller recently.

I've only bought a bostadsr?tt once and it was brand new so it wasn't really the same process. But what I read online is that when you write the contract you pay handpenning (deposit) often 10% within a week. It is often paid to the real estate agent, if so it is kept there until you are approved by the BRF.

Posted by: AlexPopov 10.Jan.2020, 08:52 AM

Thank you very much for the replies. I am married with 1 son of 2 years old. I hope we can make a smooth transition..

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