Down Payment and Age Limits Are Not Meant to Inconvenience Borrowers, but to Protect Them

According to Mari-Liis Sepp, Head of the Loan Department at Holm Bank, loan advisors frequently need to explain to clients that the down payment requirement for a home loan and other restrictive conditions are not primarily designed to mitigate the bank’s risks but rather to safeguard the borrower.

"Taking out a home loan is one of the most significant financial decisions in life. It provides an opportunity to acquire a home for one’s family but also represents a long-term commitment that affects daily life and household finances for decades. This is precisely why loan conditions are structured to protect borrowers from unexpected difficulties and to prevent potential financial distress," confirms Mari-Liis Sepp.

The requirement to make a down payment when taking out a loan is based on a regulation issued by the Bank of Estonia, which applies to all home loan providers. According to this regulation, the maximum loan amount can be up to 85% of the property’s value, meaning the borrower must provide a 15% down payment. In exceptional cases, this can be reduced to 10% if the borrower meets the criteria set by the Estonian Business and Innovation Agency (EIS) and secures an EIS guarantee.

Prevents Borrowers from Falling into Debt

"The down payment serves as an essential protection mechanism against market downturns. If property prices were to decline, it helps prevent borrowers from ending up in a situation where, in the event of selling their home, they would still owe money to the bank," explains Sepp.

To manage risks, banks assess the liquidity of the property offered as collateral through a valuation report, ensuring that its value aligns with market conditions. If the risks appear higher, the bank may request additional collateral, a larger down payment, or a co-borrower.

"Of course, having a down payment is also a signal of the borrower’s financial behaviour from the bank’s perspective – it demonstrates the ability to save and a certain level of financial stability. However, the primary objective remains ensuring that the borrower has a fundamental financial safety net in case of unexpected difficulties," states the Holm representative.

Why Are Loan Terms Limited?

According to the Bank of Estonia’s regulation, the maximum mortgage term in Estonia is 30 years. This duration is chosen as an optimal balance, allowing borrowers to maintain affordable monthly payments while keeping the overall loan cost at a reasonable level.

"If the loan term were extended to 40 or 50 years, the total interest paid over the period would make loan repayment excessively expensive," notes the Holm representative.

Banks typically offer mortgage terms that ensure the loan is repaid before the borrower reaches retirement age.

"It is well known that people’s incomes decrease significantly upon retirement. Therefore, it is reasonable that individuals should be free from regular loan payments by the time they retire, enabling them to enjoy their pension years with peace of mind," says Mari-Liis Sepp.

Transparency with Loan Advisors Is Key

She emphasises that taking out a loan should always be a well-considered decision. The bank assesses the borrower’s repayment capacity under various scenarios, including a hypothetical situation where interest rates rise to 6% or higher.

"Such stress tests help ensure that the borrower can still meet their repayment obligations even in challenging economic conditions. That is why it is crucial for borrowers to be open with their loan advisor about their financial situation and possible risk scenarios. Additionally, long-term plans and life changes—such as family expansion, career transitions, or relocation—should be carefully considered. Evaluating these aspects helps find the most suitable loan solution for the borrower and ensures that purchasing a home is a truly sustainable decision," explains the Holm representative.