Home loan causes conscript complaint

Photo: Meelis Meilbaum / Virumaa Teataja

Among conscripts, only three-four percent have managed to assume a home loan or some other obligation before call-up for service. Still, the situation at times comes up as problematic.

Dmitri from Tallinn (24) studies at a university and works. Last fall, Defence Resources Agency decided that, after six years of delay, time has come to recruit the lad.

The date is set for this upcoming September. Though Dmitri had already considered the development, the timing couldn’t have been worse – at that very moment, he was confirming his home loan conditions at a bank.

Assuming that army service is reason enough to get loan holiday with no need to pay interests, he wasn’t overly worried. Turns out, it’s not as easy as that. 

«I asked it the day I signed the agreement. They said for them me going to the army is no reason and that, in this case, I will have to adhere to the conditions to an ordinary loan holiday,» related Dmitri.

For him, terminating the deal made no more sense at the moment – he had picked the apartment and, before the purchase, poured his own money into repairs.

Conditions cause confusion

Meeting his loan manager afterwards, he learned that the loan holiday would be for six months only, though conscript service lasts nine months, and that during the holiday he would have to keep paying the interests.

Dmitri’s monthly loan payment is €220; during his time in the army, it would make about €100. «Basically I could cover the interest part out of mu monthly conscript income,» said the lad, referring to the national support falling between €100–200.

«On top of that, they told me something that I paid no attention to while signing the contract – if they give me loan holiday, they may also alter the contractual conditions such as increase my interest,» said Dmitri. For him, this was the aspect most troubling.

The home loan is from Swedbank, and the bank’s private loans department specialist Anne Pärgma says it is true: as loan contract is altered, conditions may change.

«But the bank always goes by the specific loan in question, the borrower’s payment history, and the reason for the change,» noted Ms Pärgma. She assured that conscript service is a reason upon which conditions are not altered, provided the loan agreement has been dutifully fulfilled.

Asked if the bank will not view it as a risk, when issuing a loan, if a young man is yet to do his conscript service, Mr Pärgma said this is not a separate risk analysis criterion.

«A loan is issued to a client with regular income which prescribes that the applicant has a regular job. We do not separately ask about conscript service, though during the counselling the topic may of course come up, depending on the age of the applicant and his questions,» said Ms Pärgma.

When it comes to loan obligations of conscripts, Defence Resources Agency has for years had a very definite stand, the only exception being the young men with study loans – these may assume loan holiday, during which the payments of the principal amount are suspended and the interest is paid by the state.

It is more complicated with other loans. With home loans, consumption loans, quick loans or car leasing, the conscripts may also apply for loan holiday, but the banks are under no obligation to grant it.

«The commercial banks operating in Estonia are willing to apply loan holidays, but each conscript will have to settle that personally with the bank,» said the agency’s PR-adviser Anne Osvet. She said there were no standard solutions, all cases differ.

Though, from time to time, they have been addressed with questions on how to go about a loan or leasing, the agency says this is not a very massive problem. Among other things, Ms Osvet would hereby underline the agency’s advice for young men to do their service straight after gymnasium when they have not had the time yet to get burdened with loans and leases.

Rent the flat

«It was my just expectation that, as the state decides I need to do conscript service for a time, that I would be guaranteed for a time that I do not go into the red,» said Dmitri, who has by now thought of three solutions.

The most realistic for him seems to be to rent out the apartment and out of the proceeds to keep up loan payments even during the army.

«The state enhances my assuming a home loan – granting tax incentive returning 20 percent of interests –, while, during conscript service, making my life harder,» the youth fails to get the logic of the situation.

In his opinion, the conscripts ought to have such loan holiday conditions as to apply for the entire period of nine months – not just six – and with interests also suspended.

COMMENT

Peeter Kuimet

Ministry of Defence, department head

In 2013, an estimated three-four percent of conscripts had a home loan and there is no basis to believe that the percentage has considerably changed. We are not aware of any drastic and wide-spread problems; rather, these are the single cases.   

The last time defence ministry discussed this with Banking Association was in 2013 as the ministry proposed that commercial banks offer, in home loan standard terms, payment holiday for conscripts without contractual fee.  

In its answer, the Banking Association said the corresponding advice would be forwarded to the commercial banks and, though payment holidays for the time of conscript service cannot be an automatic procedure, the banks as socially responsible enterprises stand ready to make exceptions for conscripts. To the defence ministry’s knowledge, the banks take an individual approach to the issue and, if possible, arrive at a reasonable agreement with the conscripts-to-be.

Monthly grant

During the first ten weeks, a conscript gets support of €75 a month. Starting the 11^th week, the following amounts apply:

Rank	Monthly grant (€)	Higher-level monthly grant* (€)
Private	100	150
Corporal	105	160
Junior Sergeant	115	175
Sergeant	135	200

* Higher-level grant is paid starting ninth month in conscript service

Source: Riigi Teataja (State Gazette)