If you’re having difficulty paying your mortgage or home loan or are already behind on your payments, what’s the best way to avoid losing your home?

This article discusses possible solutions to difficulties in making mortgage and home loan payments but is not intended to substitute for personal legal or financial advice.

According to the recommendation of minuraha.ee, a consumer website run by the Financial Supervision Authority Finantsinspektsioon, the total amount of loans to be repaid each month should be at most 50% of the family’s monthly income.

Talk to an experienced adviser

If you’re late with your home loan repayments, before making any hasty decisions about your mortgage, you should first consider getting independent financial advice, preferably from an independent financial adviser or from the mortgage lender, i.e., your bank.

You can read more about the risk of falling into a credit trap here.

Identify what you can afford

Before talking to your lender, you should determine how much you can pay for your mortgage. Consider all your existing loan obligations and spending, such as living expenses and their impact on your monthly budget.

If you already have mortgage debt, you’ll need to discuss with your lender how you’ll be able to deal with it and how you’ll afford the ongoing mortgage costs.

For a more convenient way to calculate your monthly income and expenses, you can also use one of the budgeting tools – calculator.

Talk to your lender

If you’re struggling to pay your mortgage, you should contact your lender as soon as possible to discuss the specifics of the loan contract, the repayment schedule, and the possible solutions the bank is willing to offer.

Lenders will usually start sending you default reminders from the first few days of arrears, but don’t delay in making your default known. The treatment of each specific default depends on the standard terms and conditions set by the lender and the special conditions agreed on separately with you.

Contact the lender to discuss the loan agreement terms, repayment schedule, and possible solutions the bank is willing to offer you in more detail. 

If your income has dropped because of something unexpected 

Your lender should understand if your household income has declined due to events such as:

• job loss, for example, if your job was made redundant
• illness or accident of a family member
• loss of a loved one
• unexpected major expenditure

A significant deterioration in your financial situation will affect your ability to service your loan obligations despite the targeted use of the loan, but some lenders may also have dedicated specialist support teams who can help explain the options offered by the lender better.

If you use your own assets to secure someone else’s loan

If you have given your property or other assets as collateral for someone else’s loan and they are having difficulty paying, you should seek advice from an experienced debt adviser. 

Find out more on the Estonian Association of Debt Advisers website. Remember to bring all the paperwork about your mortgage and other debts you want help with. Use the budgeting tool to work out your own budget.

To ensure that your financial commitments are not overstretched, you should also consider the requirements that apply to the assets that secure someone else’s loan. You may be forced to pay someone else’s loans to avoid a forced sale of your assets.

What your lender can offer

Lenders must treat you fairly and consider any request you make to change the terms of the loan agreement. Depending on your circumstances, the lender may allow you to:

• Take a payment holiday—You can apply for a break from making loan payments (usually for up to six months).
• To reduce the monthly repayment of a loan in the short term – You can extend the repayment period and apply for a reduction in future loan payments.
• Postpone the repayment deadline – the lender may agree to extend the repayment deadline under your loan agreement.
• Reduce your interest payments—If you have a good payment history, you may be able to negotiate a lower interest rate from the lender, which will reduce your future loan payments.
• Interest-only – This means a loan moratorium on the principal payments of the loan, during which you only have to temporarily pay the lender monthly interest payments. However, the loan period is also extended during this period.
• Fix the interest rate on your loan – You may be able to reduce your loan payments if you manage to fix the floating interest rate on your loan, which depends on EURIBOR, on reasonable terms, which may reduce your monthly payments. However, this is not something to do in a situation where EURIBOR is expected to fall in the near future. In such a case, it would be counterproductive to fix the interest rate.
• Change lender or refinance a loan – There is always the option to change your current lender for a new and more reasonable one, known as refinancing. More specifically, a new lender will give you money to pay off your existing loan to the previous lender. Your old loan agreement has been terminated, leaving you only with the new loan. Naturally, it is only possible to refinance a loan if you can find a lender willing to refinance your old loan. Moreover, it only makes sense if you can get better terms for your new loan, particularly a lower interest rate, APR, etc., if you find a refinancer who can offer you a new loan.

NB: When comparing the “price” of different loan offers, i.e., how much you have to pay on top of what you have to repay for the borrowed money, the first thing to do is to compare not just the interest rates but the APRs of these loans. The website of the Consumer Protection and Technical Regulatory Authority explains the definition of the APR: the APR is the total annual cost of a loan. This cost is expressed as a percentage; the lower the rate, the cheaper the loan. You can find the consumer website minuraha.ee, a consumer website for Finantsinspektsioon, which provides a calculator for the APR of consumer credit.

Borrowing a loan can involve different costs, which can run into hundreds of euros, depending on the provider and the loan amount. As a general rule, a contract fee (deducted from the bank account or the loan amount) must be paid at the time of the conclusion of each loan contract. However, mortgage-backed loan agreements also impose additional obligations on the borrower (valuation of the collateral (i.e., ordering an appraisal report, mortgage, insuring the collateral, etc.) and related costs (e.g. notary fees, state fees, insurance costs)), which also require additional outlays when refinancing (i.e. changing the lender), including notary fees, state fees and other transaction costs related to the mortgage or remortgaging.

However, Finantsinspektioon points out that while collateral insurance for securing the loan may be compulsory, any other insurance the lender may offer is strictly optional. This also includes taking out life insurance or credit insurance.

Switching or refinancing could save hundreds to thousands of euros a year, depending on the amount and terms of the loan, so it is worth considering the risks and options very carefully before making any rash decisions. 

For example, on 22 October 2024, the Financial Supervision Authority closed the misdemeanour proceedings against AB Kreditex AS on time-barring grounds despite the Authority having identified a “fraudulent management model” in Kreditex.

According to ERR’s Insight, between 2013 and 2016, AB Kreditex provided mortgages to people with obvious financial problems. As a result, many AB Kreditex clients lost their properties but were still not released from their debts.

Solutions in case of payment difficulties

Swedbank home loan support

If you are having difficulties repaying your Swedbank loan, please contact Swedbank to find out what solutions the bank can offer you. These are for example:

• Loan repayment holiday
• Full credit holiday
• Extension of the maturity of a loan contract
• Supplementary loan to pay off loan arrears
• Additional loan to refinance loans

Information on Swedbank mortgage loans can be found here.

LHV home loan support

Sadly, we could not find any information to support LHV loan borrowers except in their FAQ section (Estonian only).

More information on LHV Bank can be found here

SEB home loan support

Sadly, we could not find any information to support SEB loan borrowers; the only information we could locate was their FAQ section, which is in Estonian only.

For more information about mortgage loans from SEB Bank click here.

COOP Bank home loan support

Sadly, we could not find any information in English to offer support to COOP bank loan borrowers; only Estonian is provided below.

COOP Bank click here.

Luminor home loan support

Luminor states in its loan terms and conditions that if you want to change the loan agreement, you can change the repayment schedule of the existing loan by changing the repayment period, repayment date and repayment method (annuity or equal installments). The Bank’s price list charges a fee for changing the loan agreement.

For more information on Luminor mortgage loans, click here.

How to make an offer to a lender

Once you have advised your lender of your options and worked out your budget, you should write a letter of offer to your lender. The offer should include information on:

• why you are having difficulty making your loan payments
• how much you can pay each month
• how your offer would cover both existing debts and future repayments – if the lender has not already offered a more flexible payment option.
• About your household’s monthly income and expenditure budget

If the lender does not accept your offer

What do you do if you can’t reach an agreement with your lender and risk losing your home? If the lender does not accept your offer, consider the alternatives and their implications, but continue to pay as much as possible.

If you are unhappy with the way the lender has handled your application, you can file a complaint with the lender. If you make a formal complaint, the lender must respond to your complaint within 15 calendar days at the latest.

If the lender does not resolve your complaint in an acceptable way, you have the right to take your dispute to the Consumer Complaints Commission of the Consumer Protection and Technical Regulatory Authority or the court of law. The Consumer Protection and Technical Regulatory Authority supervises goods and services offered in Estonia under the Consumer Protection Act and helps consumers protect their rights under the law.

If the creditor initiates enforcement proceedings

It’s never too late to try to reach an agreement with your lender, even if they have already started foreclosure or legal proceedings, depending on the terms of the loan agreement. If you are facing foreclosure, you definitely need legal help to protect your rights. When negotiating with your lender about your obligation to honour the contract, it is important to bear in mind that if you cannot reach an agreement, the worst that could happen is that you lose your home.

Check if you have insurance

If you’ve unexpectedly lost your job or income, ensure you’ve got a loan insurance contract (credit insurance or payment protection insurance, also called loan protection insurance in some places). You may have taken out a loan repayment insurance policy, but the cover has expired. Although some lenders may recommend or even broker this optional additional cover for you when you sign a loan agreement, your loan payment protection insurance may not have been taken out with your lender, as insurance can only be provided by an insurance company.

Situations may arise that are not covered by your loan insurance. Check the terms and conditions of your policy carefully to see what is covered, exactly how to claim it, and how long you can claim it.

Try to reduce your costs

Check if you can get cheaper insurance

You may be able to exchange your home insurance contract for a cheaper one. Depending on whether you have taken out insurance through your lender or with another provider, it may be wise to switch. Ask your insurer for advice and compare several quotes to reduce your costs.

You can also find good tips on reducing the cost of home insurance on MoneyHub.

Reduce your everyday costs

It might be worth checking your standing orders and subscriptions and cancelling anything that doesn’t offer value for money. Reducing your spending can help you manage different types of loans, such as mortgage loans, by making it easier to meet repayment obligations. . It is also worth considering making financial savings on various fixed monthly costs, such as switching to a cheaper provider for broadband, mobile phone operator or energy.

You can also find other tips for managing personal debt.

Try to increase your income

Increasing incomes can help make it easier to meet your mortgage payments, especially as interest rates on housing loans have started to fall. However, it is more difficult to increase your income than it is to limit your spending.

One option is to ask your employer for a pay rise or an increase in your workload, but this may not always be feasible either. Depending on your job, you may be able to get better working conditions by changing your employer – a higher salary, a higher hourly rate or a reduced workload for the same salary, for example. In general, your current employer, fearing losing an employee, will also agree to offer you better pay conditions, as inflation and wage pressures mean they may not be able to find a replacement with the same pay level. However, it will inevitably take time for a new employee to settle in and become effective.

At other times, it may be wise to create an additional source of income from some of your hobbies or side activities. This could be selling handicrafts, tutoring or teaching, becoming a courier or taxi driver for Bolt, test shopping, etc. Various classified advertising portals can be used for these smaller jobs, but there are also dedicated online portals such as GoWorkaBit or UpWork.

Find out if you are entitled to benefits from the state or municipality

See which benefits you would be entitled to apply for from the Social Insurance Board or your local authority (Subsistence benefit). When you apply, you and your partner must provide information (bank statements) about your savings, income, pension, child and family allowances, and other benefits.

Selling your home to pay off debts

If you don’t have enough money to keep up with your home loan, mortgage payments, or the debts you’ve incurred, you may be in a situation where the best way to pay your debts is to sell your home yourself. But before you do this, you should seek the advice of a professional financial and legal adviser.

Selling your home may seem inevitable if your financial situation is tight, but there may be other ways to improve your situation or solve your problem. You should also bear in mind that selling your home may take longer than expected, and until it is sold, you will still be responsible for all the costs involved.

In poor economic conditions, such as we are seeing now, unfortunate situations can arise where the property(ies) securing a home loan are not sufficient to fully cover the entire outstanding debt with ancillary claims. This means that you could lose your home but still owe part of the debt.

Since taking out a housing loan in Estonia (unlike in Latvia, for example) is not restricted, the borrower is liable to the bank only for the real estate purchased with the loan in the event of payment difficulties.

However, in the event of bad circumstances, the bank initiates an auction sale of the real estate pledged as collateral to recover the debt. Still, obtaining a price for the real estate that corresponds to its actual market value at the auction (in a quick sale) is impossible. In this case, if the money raised at auction does not cover the total amount owed to the home loan provider, the outstanding debt will remain despite the loss of the security.

Alternative solutions ‘outside the box’

Here are a few possible ’outside the box’ tips you may consider to improve your financial situation without finding an extra job. For example, if you still own some property or live in a house or apartment, renting part of it out might be possible. Of course, you should remember that rental income is also taxable.

If you could move to a cheaper place to live and rent out the property you bought with a loan at a higher income than the rent (and other associated expenses), you could improve your family budget. 

However, you should remember that individuals cannot offset their own rental costs against their rental income when meeting their tax liability. This means that you may be able to increase your income in this way, but your outgoings would also increase in the form of an additional tax liability.

Read more about whether and how to sell your property to pay off your mortgage debts!