Should a Student Buy an Apartment During Studies? Rental Costs Can Be Several Times Higher Than an Apartment Down Payment

When a child starts studies in another city, many families face a question: should they pay years of rent or instead buy a smaller apartment themselves? If the family already has their own home and a large portion of the loan has been paid back, purchasing can be a seriously worthwhile alternative compared to years of rental costs.

According to Anne Pärgma, head of home loan services at Swedbank, the rental cost of a student apartment can become very large over the years. "If the apartment rent in Tallinn or Tartu remains around, say, 500 euros per month, over four to five years you could spend approximately 30,000 euros on rent. In such a situation, it's worth calculating whether that same money could instead go towards buying an apartment," said Pärgma.

If we take, for example, a roughly 45-square-meter two-room apartment in Mustamäe, which depending on condition could cost around 110,000 euros, with a 15% down payment and a 30-year loan period, the own financing would be approximately 16,500 euros. The monthly payment would then be around 450 euros per month. In Tartu, for example in Annelinn, a similar sized apartment could be obtained for around 80,000 euros and under the same loan conditions the initial down payment would be 12,000 euros and the monthly loan payment would be approximately 325 euros.

Moreover, under certain conditions, financial own financing may not even be necessary, for example if an existing property is used as additional security in the purchase. Many parents have already paid off their previous home loan by the time their child goes to university, which provides the opportunity to use existing property as additional security in the purchase of a second apartment as well.

According to Pärgma, this means that in many cases the home loan monthly payment can remain in the same range as rent or even be cheaper. "The difference is that in one case you're paying for years simply for the use of living space, in the other case the family retains property that can later be sold, rented out, or given to the child as their very first home," she explained.

If the apartment remains with the child, it can give them a good starting position for buying the next home in the future. "If the property value has increased in the meantime, it makes the next step significantly easier. This way a young person has the opportunity to buy a newer or larger home – even in another city," said Pärgma.

Buying property and taking out a loan is a considered decision, but does not necessarily mean a very long-term obligation. If a desire or need arises, the property can always be sold and the loan paid back earlier. If the property has increased in value in the meantime, the remaining amount stays with the person themselves.