What mortgage types are there for expats in The Netherlands?
You generally have 3 different mortgage types in the Netherlands you can choose from: annuity, linear or interest only.
Type 1: Annuity mortgage
Most expats in the Netherlands choose an annuity mortgage. With an annuity repayment scheme, you pay a fixed monthly amount to the bank during the whole course of the mortgage. This amount consists of interest and loan repayment. The ratio of interest vs loan repayment shifts as time progresses. During the first couple of years, your monthly payments largely consist of interest and just a small amount of loan repayment. However, over time and as your debt decreases, the amount of interest decreases, and your loan repayments increase.
With an annuity mortgage, you are eligible for a tax rebate of interest. You really take advantage of it but over time the tax rebate decreases. This means your net monthly payments increase over time (even though the gross mortgage payments stay the same).
Type 2: Linear mortgage
Your second option is a bit more straight forward, the linear mortgage. When you choose a linear mortgage your loan repayment is the same every month (30 years = 360 months: so you divide the mortgage amount by 360 to calculate the monthly loan repayment). Besides the loan repayment, you will also pay interest every month. As your outstanding mortgage decreases, every month so do your interest payments. With a linear mortgage, you initially start with high mortgage payments, and over time they decrease.
With a linear mortgage, you are also eligible for the tax rebate. As you are paying the mortgage back quicker compared to an annuity mortgage you will pay less interest over a 30 year period.
Type 3: Interest-only mortgage
Since 2013 interest-only mortgages kind of disappeared from the stage in The Netherlands due to new regulations. To summarize it, the tax rebate disappeared on newly closed interest-only mortgages and it is maximized at 50% of the total mortgage. Recent trends however show that they are making a comeback.
An interest-only mortgage means that every month you only need to make interest payments. As you do not have loan repayments it really decreases the monthly mortgage amount. But there is no tax rebate and at the end of the whole mortgage, you still have an outstanding debt that the bank will be keen to collect. With current low-interest rates, the tax rebate is not so high anymore, so the benefit of a linear or annuity mortgage compared to an interest-only mortgage without tax rebate is not as big as it used to be.
Which type of mortgage suits you best?
This really depends on what works for you. Overall we can recommend an annuity mortgage for young families with higher expenses or workers at the beginning of their career anticipating a higher income in the future. A linear mortgage fits people expecting a decrease in their income (i.e. want to work less in the future or close to their retirement) or with very high incomes. An interest-only mortgage (maximum 50% – the other 50% being annuity or linear mortgage) is for those looking for the lowest possible monthly expenses and will have other means to pay off the remaining debt at the end of the mortgage.
Sometimes a combination of mortgage types is recommendable, such as 50% annuity with 50% linear or 70% annuity with 30% interest only. Also, don’t forget with every bank you can pay off an additional amount (most often up to 10% of the mortgage) per year without a penalty. If you prefer some flexibility then opt for an annuity mortgage where you can decide at the end of the year if you want to put some extra savings towards the mortgage or another purpose.
Our advisors would happily show you some different mortgage scenarios and what your monthly expenses would look like.
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