When you buy a home, you will inevitably encounter the concepts of a housing loan, a financing charge and a debt-free price. The amount of loans taken out by housing companies has increased significantly in recent years – in new builds, the amount of the company loan can be up to 70% of the selling price of the home. What do these terms mean in practice and how do they affect your home purchase? And is it worth paying the full amount of the company loan when buying a house?
What is a housing loan and when is it needed?
A housing loan is a loan taken out in the name of a housing company, which is always decided at a shareholders’ meeting. It is therefore a joint loan between the shareholders, which the whole housing company is ultimately responsible for paying.
A housing company may have different types of loans:
- Maintenance loan – to finance, for example, investment repairs or other acquisitions that are not separately repaid by the shareholders through a financing charge
- Financial loan (subordinated loan) – a long-term loan that is repaid monthly by the shareholders through a financing charge. This is the most common form of company loan
- Credit line – a flexible form of financing for short-term needs
In new builds, loans are generally always available, while in older companies, loans are usually taken out to finance major renovation projects.
Financial loan – the main form of company loan
The financial loan is the part of the housing loan that directly affects your monthly housing costs. It is a long-term capital loan to cover expenses such as the construction and renovation of a building.
The financial loan is allocated to each apartment in proportion to the share of the total company loan that is allocated to that apartment. This loan to one apartment is called the loan share.
There are several ways to pay a financial loan:
- Monthly financing charges – the most common way to pay off your loan gradually
- All at once – free yourself from the financing charge
- Partly – you pay part off on dates set by the housing company’s board of directors, typically twice a year
Is it worth paying off the company loan when buying a house?
Paying off your company loan all at once is a major decision that will affect the purchase price of your home and your future monthly expenses. Please consider the following carefully:
Factors in favour of payment:
- You are freed from the monthly financing charge
- Avoid interest rate risk – if interest rates rise, you won’t be affected
- The value of your home will not suffer from a rise in the interest rate on a housing loan
Non-payment factors:
- Interest on a company loan, like other mortgage interest, will no longer be deductible for tax purposes after the beginning of 2023.
- You tie up a large sum of money in housing
- You will lose any leverage if the value of the dwelling rises
- If interest rates fall, you will not benefit from the development
While you still have a choice between the two options, consider paying off the housing company’s loan when you buy your home. Later on, the possibility of paying the loan share in one go will depend on the decisions of the housing company and the possible instalments.
Selling price vs. debt-free price – what is the difference?
When pricing a home, it is important to understand the difference between the two prices:
The selling price (purchase price) is the amount you pay the seller. In addition to this, you take on the responsibility for the loan share on the property, which you pay each month as a financing charge.
The debt-free price consists of the total of the selling price and the loan share. When you pay the debt-free price, you get a home without the burden of a loan and without having to pay a financing charge.
For example: if the selling price of a home is €200 000 and the loan share is €50 000, the debt-free price is €250 000. You can either pay €200 000 and take responsibility for the €50 000 loan share, or pay the full €250 000 and get the house debt-free.
Payment and practicalities
The company contribution consists of two parts:
- Maintenance fee – covers building maintenance, minor repairs and running costs
- Financing charge – used to pay off the housing company’s finance loan
When you buy a home, your obligation to pay the consideration starts from the date of transfer of ownership – not when you are officially entered in the share register. In practice, you should give your contact details to the housing company immediately after the sale, so that you receive your bills at the right address.
The share of the company loan must be clarified at the time of the transaction and indicated on the property manager’s certificate. In addition to the loan, accrued financing charges, interest and other loan servicing costs are taken into account when calculating the loan share.
A company loan is an important part of the housing transaction, affecting both the purchase price and future housing costs. Carefully understand the mortgage situation of the home you are buying and consider whether it is suitable for your financial situation in the long term.
Thinking about buying a home?
The housing company’s documents tell you much more than the sales brochure. Before the deal is done, it’s worth knowing what the company loan, the PTS plan and the financial statements really mean – and what’s missing.
OUN® will read your documents for you and provide a plain-language analysis within 24 hours. We are 100% on your side – we don’t sell the property to anyone.
