Property Loans With LSR

Do you have loan rights at LSR?

You can easily check that on My Pages.

It is good to think about whether it is necessary to take out the loan, or whether it is possible to have it lower. In some cases, for example, it might make more sense to use savings or assets that can be sold instead of taking out a large loan. 

When do you want to be finished paying off the loan?

Repayment of property loans is a long-term project, so it makes sense to think the issue through. For example, it might be wise to aim for the loan to be paid off before retirement.

What is a realistic loan amount?

When taking out a property loan from LSR and other creditors, you always have to go through a payment ability evaluation, where it is assessed how much you can borrow based on your monthly income and debts. This is covered in more detail below. When evaluating this, it is also important what your credit rating is and what your payment history has been with LSR, if you previously had a loan with the fund. 

Is the mortgage limit on your property enough for the loan?

LSR lends up to 70% of the real property value or purchase price if you are buying a property. This means that if you are buying a property, you need to be able to pay at least 30% of the purchase price. It is therefore important to check carefully whether you have enough equity to support it.

During a payment ability evaluation, your existing debts and their monthly installments are assessed, such as car loans, student loans and other loans that will not be paid off by the new loan. At the same time, it is estimated how high various general expenses are for the home, and this depends on, amongst other things, family size, age of children, number of cars in the household and other factors.

Before applying for a property loan, it may be wise to review the household's monthly expenses and assess whether expenses and obligations can be reduced somewhere. 

If you anticipate that household expenses will change in the near future, e.g. if you are planning to have children, start repaying student loans, increase the number of cars in the household, etc., you should also keep this in mind when assessing whether increased leverage is suitable at this point in time.

When taking out a loan, this income, after deducting the expenses mentioned in step 2, must be sufficient to pay off the loan along with other obligations. It is traditionally called "passing payment ability evaluation". When applying for a loan, you go through a payment ability evaluation process where this is calculated.

In addition to this, the Central Bank of Iceland's special criteria for payment burdens must be met. The installments are estimated based on a certain interest rate and loan period and, together with payments from other property loans, may not exceed 35% of the household's monthly disposable income. If you are buying a property for the first time, the permitted rate increases to 40%. 

Just as with expenses, it is wise to consider whether income is likely to change in the near future. Are you or your partner about to change jobs, begin studies, or enter the labour market after studies? When making a long-term decision such as taking out a property loan, it is wise to take such changes into account.

At LSR, there are two types of interest rates available for indexed loans and one type for non-indexed loans.

• Non-indexed loans: interest rate that changes every 36 months
• Indexed loans: interest rate that changes every 36 months
• Indexed loans: interest rates that are fixed for the duration of the loan

You can also choose to mix an indexed and non-indexed loan. In addition, two types of installments are available: equal payments or equal installments. 

All of these options have their pros and cons that you need to weigh and evaluate based on your circumstances. Basically, it's a question of whether you want to have low installments initially with less asset formation, or start with higher installments and faster asset formation. In addition, you need to evaluate whether you can tolerate large changes in installments, which often come with non-indexed loans, or whether you want slower changes. 

It is also good to keep the conditions in the economy in general in mind when choosing the type of loan. It is wise to find out whether interest rates are likely to rise or fall in the near future, whether high or low inflation is expected, and so on.

You can see these fees in the calculator by clicking on the button "See breakdown." 

When comparing loan types, it is also important to look at the "Total payment" field in the Loan Calculator. There you will see an estimate of how much you will have to pay in total for the loan in question, which can often vary greatly between loan types. That number includes all borrowing costs plus interest. If it is an indexed loan, indexation is also part of the total payment. 

On the tariff page you can see an overview of all costs related to borrowing and loan payments at LSR, including default fees, but the total cost of borrowing can increase significantly if there is a default. 

• Signed purchase offer for the property to be purchased. 
• Signed purchase offer/purchase agreement for the sale of your property along with the purchase of a new property.
• Confirmation of funds to be used for the property purchase (if funds from the sale of a property are not to be used.) Such confirmation can be a screenshot of a balance in a bank account or securities holdings, for example.
• If there are changes in your circumstances, you must submit information thereof. If, for example, a divorce or separation occurs, a certified financial settlement and divorce agreement must be submitted.

In the case of refinancing, you do not need to submit special additional documents, but you must specify which property loan is to be paid off. It is also not necessary to submit additional documents in other cases when applying for a loan, unless the borrower's circumstances will change based on the available information.

What is the application process?

1. You fill out an electronic application form for a loan on LSR's My Pages where the loan amount, loan period and type of loan are specified. All owners of the property to be mortgaged must sign the application electronically.
2. Once the application has been signed electronically, you will get access to an electronic payment ability evaluation at CreditInfo, where you, and your spouse if applicable, or the owners of the property, need to confirm that data on income and debts from companies and institutions can be retrieved.
3. LSR staff reviews the application and will contact you if any additional information is missing.
4. Before you make the final decision about the loan  , you will receive consumer information regarding the loan, which you need to familiarise yourself with, along with the final payment ability evaluation. You need to sign the relevant documents electronically, along with your spouse/property owners if applicable.
5. LSR staff prepares a bond that you (and your spouse/property owners, if applicable) must sign in person. You can both come to the LSR office at Engjateigur 11, or request that the bond be sent by post. 
6. Once the bond has been signed, it must be registered with the District Commissioner. LSR offers to send the document for registration for a fee, but you can also handle it yourself.
7. Once the registered bond has been received by LSR, the loan is disbursed. The amount of the loan is paid out according to the purpose of the loan. When buying property, the payment goes, for example, to the seller/relevant real estate agent, but during refinancing, existing loans are paid off in accordance with the loan application. Otherwise, the amount will be credited to your account.