Pre-contractual information on home loans of LHV Pank

Before concluding the loan agreement

Before concluding a loan contract, think carefully about your loan decision and if possible, compare the offers from several creditors. Please read the terms and conditions of the home loan on LHV Pank’s web page at lhv.ee/en/home-loan and be sure to consult our specialists.

The terms set out in pre-contractual information are not binding and the bank cannot require the conclusion of the loan contract on the basis of these terms from the creditor. When concluding or amending the loan contract, the parties of the contract shall comply with the terms and conditions set in the loan contract.

The borrower has the right to submit enquiries to the bank and receive clarifications about the terms and conditions of the contract before and during the validity of the loan agreement.

Details on LHV Pank:

Business name: AS LHV Pank
Registered in the Estonian Business Register under the registry code 10539549
LHV Pank has the activity licence of a credit institution, which has been published by the Financial Supervision Authority (www.fi.ee/en) with the decision of the management board No. 4.1-1/37 on 6 May 2009.

Contacts:

Located at Tartu mnt 2, 10145 Tallinn
Phone (+372) 6 800 400
Email info@lhv.ee, kodulaen@lhv.ee
Website: www.lhv.ee/kodulaen
LHV Pank is part of the Estonian Banking Association and is guided by their code of conduct in their actions: www.pangaliit.ee.

General principles to consider when taking out the loan

The prerequisite for issuing the loan is a valid customer agreement (payment services agreement) with LHV Pank and a current account in LHV Pank.

The solvency of the borrower can change significantly during the validity of the loan contract (e.g. in case of long-term illness, loss of employment or a reduction in salary). Therefore, before borrowing, the borrower must carefully consider whether, in the event of unpleasant unexpected events, the borrower will be able to repay the loan as income decrease and/or existing liabilities increase.

The borrower must consider that if the loan interest is linked (tied) to Euribor, an increase in the Euribor level will mean an increase in the monthly loan repayment. For more information about Euribor, see “Loan Repayments and Loan Costs” below.

If the borrower defaults on the loan agreement, it can have serious consequences (including default interest, premature termination of the loan agreement, realization of collateral) and may further complicate receiving a new loan.

The borrower is liable for the fulfilment of the obligations arising from the loan contract with all of his or her assets.

The borrower must be aware that if the market value of the pledged immovable or other assets secured by the loan decreases, the bank may request additional collateral.

Depending on the terms and conditions of the loan agreement, the bank may disburse the loan in one or several installments.

If the loan contract has more than one borrower, both parties shall be jointly and severally liable for the obligations under the loan agreement. This means the bank is entitled to require full or partial fulfillment of the obligations from all borrowers jointly or from each, or any of them. Those required obligations may include repayment of the loan and payment of interest, as well as the obligation to insure the underlying asset and the related payment of insurance premiums.

Steps for taking a home loan

1. The borrower shall submit a home loan application and the bank shall advise the customer over the phone or via e-mail (without a service charge).
2. The borrower shall submit the documents necessary for applying for the loan (loan application, the bank account statement of the past six months) to the loan specialist who will analyse the information received. The borrower shall additionally order an expert assessment on the collateral and submit it to the bank (the fee of an expert assessment shall be paid).
3. The bank shall notify the borrower about the financing decision and advise them on the terms and conditions of the contract to be concluded (without a service charge).
4. The borrower and the representative of the bank shall sign the loan contract digitally or at the branch office. Depending on the transaction, a contract fee shall be debited from the borrower’s LHV Pank account.
5. A notarial (collateral) contract shall be concluded, i.e. purchase and sale contract and/or the establishment or assignment of a mortgage (notary fee(s) and the state fee shall be paid).
6. The Bank shall pay the loan amount to the borrower’s bank account and the borrower shall pay it to the seller of the property (depending on the transaction, contract fee will be debited from the borrower’s LHV Pank account).
7. The borrower shall insure the collateral and submit a valid insurance policy to the bank.

Responsible lending

The bank shall follow the principles and requirements of responsible lending when issuing a loan and amending the loan contract. To this end, the bank shall collect information which allows it to assess the solvency of the borrower prior to the conclusion of the loan contract or its amendment. The bank shall consider all known circumstances which may affect the borrower’s ability to repay the loan on the terms and conditions agreed upon in the contract.

The bank shall have the right to obtain the necessary documents and information from the borrower to assess their solvency, enquire about additional clarification regarding existing income and obligations and the intended purpose of the collateral(s) and loan and other documents which confirm the correctness of the data forwarded to the bank.

If the borrower does not submit the information or evidence necessary for assessing solvency and therefore, it is not possible to assess their solvency, the bank cannot conclude a loan contract with the borrower.

The bank shall also have the right to collect information from public databases (e.g. Creditinfo, official registers) and other sources (e.g. information published by bailiffs about already existing obligations).

The bank shall assess the solvency of the borrower both when issuing a new loan as well as prior to making amendments to the concluded loan contract.

Before signing the loan contract, the borrower must confirm that

• information they submitted to LHV Pank (incl. their interest and information on financial standing) and other materials and documents are sufficient, and the information presented in them is true;
• the loan obligation they assume conforms to their needs and economic situation;
• they have examined the terms and conditions of the loan contract with sufficient attention and understand the essence of the obligations assumed by the signing of the loan contract, have received explanations about their questions regarding the terms and conditions of the loan contract, and wish to enter into the loan contract subject to the terms and conditions set forth in it.

Collateral

When calculating the loan amount, LHV Pank also considers, in addition to the solvency of the borrower, the acceptance level of the collateral.

This represents a percentage of the market value of the collateral in the amount of which the bank agrees to grant a loan against the collateral. The acceptance level depends on the location, condition, age of the collateral, and other conditions.

The acceptance level of LHV Pank for a home loan is up to 85% of the market value of the collateral, depending on the location and condition of the collateral.

This means that the remaining amount of the transaction is provided by the customer’s own financing.

If the borrower wishes to offer a legal share in an immovable as collateral, they must also provide the bank with the notarised conditions of use of the respective registered immovable.

In order to determine the market value of the collateral, the borrower shall submit an expert assessment to the bank, which complies with current assessment standards and which has been compiled by a real estate agency approved by the bank. Depending on the type of collateral and the wishes of the client, the bank shall be entitled to carry out an assessment about the market value of the collateral itself.

The collateral of the loan can also be a deposit and/or securities accepted by LHV Pank.

If the collateral to be established is the joint property of spouses, the consent of both spouses is required to enter into the collateral agreement. Consequently, the spouse of the borrower must also come to sign the notarised collateral agreement.

With a view to performing the obligations arising from the loan contract, a mortgage for the benefit of LHV Pank is established on the collateral which is immovable, in the amount that normally equals 1.3-fold (one point three fold) the loan amount.

If the borrower wishes to sell or lease the collateral during the validity of the loan contract, prior approval must be obtained from the bank.

Loan repayments and costs related to the loan

1. A monthly payment comprises of the repayment of the loan (principal) and interest. Interest is a fee which the borrower shall pay the bank for the use of the loan amount.

   The interest payment depends on the loan amount as specified in the loan contract, the bank’s marginal, and the Euribor.

   Euribor is a pan-European interbank interest rate (Euro Interbank Offered Rate). This is calculated with several terms, the most common ones being the 3, 6 and 12-month Euribor. For example, the interest rate related to the 6-month Euribor changes after every 6 months on the basis of the loan contract when the interest rate either decreases or increases. If the Euribor becomes negative, it shall be considered equal to zero. LHV Pank only offers linking of interest with the 6-month Euribor.

   The bank’s margin is a fixed part of the interest rate, which is added to the base rate of the Euribor. The interest margin is calculated separately for each client and it depends on the solvency of the client, the extent of the collateral(s), previous payment behaviour and self-financing. If the borrower wishes to change the fixed terms and conditions of the loan contract (applies for an additional amount, grace period or the extension of the term), the bank may change the interest margin.

   Interest is calculated on the loan amount at the disposal of the borrower. Interest is calculated from the day the loan is given for the disposal of the borrower until the day when the borrower has returned the entire amount of the loan, and in accordance with the terms and conditions of the loan contract to LHV Pank.

   The loan is repaid to the bank in monthly instalments on the basis of the payment schedule. On the day agreed upon in the loan contract, the bank debits the repayment of the loan (principal) and interest from the borrower’s account. It is the obligation of the borrower to make sure that sufficient funds are available on the account linked to his or her loan on that date for the payment of the loan amount.

   Interest is tied to the six-month Euribor; thus, the amount of a monthly loan payment changes every six months when the Euribor level is changed.

   In order for the borrower to know the amount of his or her loan payment, the bank will e-mail a new schedule every six months. If the borrower does not receive the schedule, he or she must promptly notify the bank, since non-receipt of the repayment schedule does not release one from the obligation to repay the loan.

   Before entering into the loan contract, the borrower may request a sample schedule with the offered loan conditions from the bank, so as to better evaluate the amount of his or her monthly obligation.

   Examples:

   1. Annual percentage rate
      The annual percentage rate of charge shows the total annual cost of the loan. This cost is shown as a percentage and the smaller the percentage, the cheaper the loan. The annual percentage rate of charge does not include fines for delay or additional fees which may be included with delayed payments.
      The annual percentage rate of charge of a home loan is 4.72% per annum on the following example conditions: loan amount € 100,000, self-financing 30%, interest rate 4.41% per annum (variable, based on 6 month Euribor), contract fee € 1000 and the period of the loan is 120 months. The total sum of payments is € 124,785 to be paid in monthly annuity payments. In order to receive credit, an insurance contract on the collateral is entered into. The rate does not include the expenses related to establishing and insuring the collateral.
   2. Impact of the Euribor changes depending on the amount of loan payments
      The borrower enters into a loan contract for the amount of EUR 100,000. The six-month Euribor fixed in the loan contract is 0.404% and the bank’s marginal is 4.5%. It means that the final interest is 4.904%. On the premise that the period of loan repayment is 30 years, the monthly loan payment is EUR 530.97. If, after six months, the Euribor rate has risen to 1.2%, the new interest rate will be 5.7%, meaning that the monthly loan payment increases to EUR 580.40.

2. The contract fee is a fee payable by the borrower to the bank for entry into the loan contract and is defined in the loan contract. The bank debits the contract fee from the account of the borrower on the day the loan contract is entered into. If the borrower’s account does not hold sufficient funds, the contract fee or the outstanding amount is covered at the expense of the loan, or added to the borrower’s debt.

3. If the borrower submits an immovable as collateral for the loan, he or she must consider additional fees and charges, which may be:

   • notary fee (the amount arises from the law),
   • state fee (the amount arises from the law),
   • contract fee (the amount arises from the terms and conditions of the loan contract),
   • fee for the evaluation of the collateral (amount arises from the service provider).

   The borrower must be prepared to pay such charges, even if the collateral agreement is entered into with the bank by a third person (e.g., when additional collateral is established).

4. The amount of notary fees and state fees is stipulated by law. Information about these amounts can be obtained from the State Fees Act accessible on the web page www.riigiteataja.ee and www.notar.ee, or from a notary agency where the transaction is performed.

5. The borrower is required to insure the immovable established as collateral under the terms agreed in the loan contract and submit the insurance policy to the bank promptly after entry into the loan contract. The borrower must also ensure the fulfilment of the insurance obligation and submission of the insurance policy if the underlying collateral is owned by a third party.

The collateral must be insured for the entire loan period and thus the borrower must consider the periodical costs of paying a premium for the collateral.

1. If the borrower wishes to repay the loan prematurely (in full or in part), the bank shall be entitled to charge the borrower an early repayment fee.

2. If a party to the contract wishes to amend the contract, the bank may claim a fee from the borrower for amending the contract.

Withdrawal from the agreement

The borrower shall be entitled to withdraw from the loan contract without giving any reason during 7 (seven) days from the conclusion of the contract.

To this end, the borrower shall submit a written withdrawal application to the bank’s postal or email address provided in the contract.

When withdrawing from the contract, it is necessary to immediately, but no later than 30 days after submitting the withdrawal application, return the loan amount and pay the interest that has accumulated by the moment of return. If the borrower does not return the loan within the set term, it is deemed that they have not withdrawn from the loan contract.

Non-performance of payment obligations and applicable rates of penalties and fines for delay

Should the borrower face payment problems, we ask him or her to immediately contact LHV Pank so as to identify ways in which these problems can be resolved.

By entering into the loan contract, the borrower grants the bank the right to debit any debts arising from the loan contract from the borrower’s account. If the account does not hold sufficient funds on the debt repayment date, the bank may block the use of the account and debit the account to the extent of the debt upon the receipt of funds.

If the borrower fails to make the payments arising from the loan contract on time, or pays the same in part, the borrower must pay the bank a fine for the delay for each delayed day. The fine for delay means the maximum rate applicable under current legislation for consumer credit, for each delayed day. The rate of the fine for delay changes on the basis of the Law of Obligations Act. The fine for delay is calculated from the day following the payment day until the day when the debt is fully paid.

If the borrower fails to pay the contractual amounts on time, the bank may claim compensation from the borrower (incl. a fee for the notice of debt) for the costs incurred in the collection of the debt on the basis of the rates established on the bank’s price list and/or the actual costs incurred by the bank.

If the borrower fails to perform the obligations assumed under the loan contract and fails to remedy the violation by the new deadline granted by the bank, the bank may claim a penalty from the borrower of up to 3% of the loan amount.

Any costs incurred by the debt do not release the borrower from the making of monthly loan payments. The borrower needs to understand that failure to perform the monthly payment obligation may impinge on his or her ability to receive a loan in the future. Consequently, in the case of payment problems, the borrower should contact the bank at the earliest opportunity to find the best solution to the situation that has arisen.

Consequences for violation of the loan contract

The bank has the right not to disburse the loan to the borrower, if at least one of the following circumstances occur:

• the due date for commencement of the use of the Loan has expired. This period is in general one month from the date of conclusion of the loan agreement.
• the borrower has failed to properly perform the loan contract and/or any other contract entered into with the bank and does not remedy the violation of their obligations by the new deadline granted for this purpose;
• the borrower has failed to submit the bank the requested documents or information, or has submitted false documents or information.

If the bank needs to verify documents and/or circumstances or make enquiries due to the fact that the borrower has failed to meet the terms and conditions of the loan contract, the borrower is required to compensate the bank for all costs incurred due to verification or enquiries.

If an intended purpose has been set for the loan amount in the loan contract, the borrower has the obligation to use the loan amount for its intended purpose. The bank shall be entitled to receive information and require additional documents from the borrower about the intended purpose of the loan amount. In the case of the loan amount being used for a non-intended purpose, the bank shall be entitled to fine the borrower or cancel the loan contract concluded with the borrower prematurely.

If the borrower and/or the owner of the collateral fails to insure the collateral on the terms and conditions set forth in and pursuant to the procedure provided for in the loan contract, or fails to submit an insurance policy to the bank, or if the bank has grounds to believe that the insurance cover of the collateral is invalid, the bank may enter into an insurance contract at its own discretion and add the expenses incurred in relation to this (including the premiums paid) to the borrower’s debt.

In the event of full or partial destruction of the collateral, the bank may gain possession of the insurance indemnity and use it at its own discretion for fulfilment of the borrower’s payment obligations arising from the loan contract, or pay the indemnity to the owner of the collateral to restore the collateral.

In the case of violating the obligations set out in the loan contract or one of them, the bank shall be entitled to claim a fine from the borrower to the extent of up to 3% of the loan amount pursuant to the grounds and procedure set out in the loan contract.

Consequences and circumstances of cancelling the loan contract

If the borrower fails to perform the obligations agreed in the loan contract, and the bank and the borrower do not reach an agreement suitable for both parties regarding the fulfilment of obligations, the bank shall have the right to cancel the loan contract extraordinarily and claim prompt repayment of the loan from the borrower, plus prompt payment of the interest and other debts arising from the loan contract.

If the borrower is in arrears for three (3) consecutive monthly payments, the bank may issue a warning to the effect that the loan contract will be terminated, in which the bank communicates their further actions, such as publication of the payment default in Credit Information and collection of the debt via court. During this time, cooperation between the borrower and the bank is important so as to find the best option to solve the situation that has arisen.

LHV Pank shall be entitled to cancel the contract without notice and claim the entire payment of the debt in the case if at least one of the following events take place, which are considered as valid reasons:

• the borrower has, in the loan application or in other documents related to the loan, submitted false information to the bank (incl. forged information submitted to the Bank) or failed to submit data which impact the performance of the loan contract and the evaluation of the solvency of the borrower;
• the borrower has not, in part or in full, paid the repayments of the loans at least three consecutive times and does not eliminate the violation during the 14-day additional term given by the Bank;
• the borrower does not use the loan for the purposes set forth in the loan contract;
• the borrower fails to fulfil payment obligations regarding some other debt obligations before the bank and does not eliminate the violation during the 14-day additional term given by the Bank;
• the borrower does not fulfil other terms and conditions of the loan contract and/or collateral agreement and does not eliminate the violation during the 14-day additional term given by the Bank;
• the person acting as surety for, guaranteeing or otherwise securing the borrower’s obligations arising from the loan contract is subjected to liquidation, restructured or declared bankrupt and/or the person has assumed additional debt obligations without the bank’s prior written consent, and the borrower and the bank fail to reach an agreement with regard to the provision of additional collateral to the loan contract;
• the value of the property deposited as collateral has decreased and the bank believes that it is not sufficient to secure the obligations assumed, and the borrower and the bank fail to reach an agreement with regard to the provision of additional collateral to the loan contract.

If the borrower stops the pursuit of a solution, does not stop the violation of the loan contract and continues to not perform their monthly obligations, the bank may unilaterally terminate the loan contract ahead of its term and initiate enforcement proceedings for the forced sale of the property encumbered with the mortgage, or turn to the court for the fulfilment of their requirements. The costs of such proceedings are set out in law and payable by the borrower. Enforcement proceedings shall be carried out by a bailiff pursuant to the Enforcement Code. The bank shall turn to the court pursuant to the procedure set out in the Code of Civil Procedure (www.riigiteataja.ee). In the case of the latter situation, costs will be added to the bank’s claim which will be set by the court pursuant to the procedure stipulated by law.

Additionally

If the borrower is not satisfied with the bank, they have the right to file a complaint to the bank, to which the bank shall respond as soon as possible but no later than within 15 calendar days. The form of filing a complaint is accessible at the address https://www.lhv.ee/assets/files/applications/Kaebuse-esitamine-AS-LHV-pank-vastu-EN.pdf. If the borrower is not satisfied with the decision made about the complaint, they have the right to turn to the consumer complaints commission at the Consumer Protection and Technical Regulatory Authority (www.ttja.ee) or to the court. They may also file a complaint on the activity of LHV Pank with the Financial Supervision Authority (www.fi.ee/en).