Let’s meet! In our first introduction we explain in depth all your options for buying a house in the Netherlands.
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What are the various mortgage types?
In the Netherlands, there are several types of mortgages you can typically choose from. Each type differs in how you repay the loan and how your monthly payments are structured. Since 2013, only certain types of mortgages qualify for tax benefits (mortgage interest deduction), primarily the annuity and linear mortgages. Understanding the different types of mortgages can help you decide which one is the best for your financial situation and future plans.
Annuity mortgage
With an annuity mortgage, the gross monthly costs remain fixed during the lifetime of the mortgage.
This is however only when the interest on the mortgage is fixed. The structure of the mortgage changes throughout the lifetime: at the start you pay more interest and less repayment on the principal and at the end this is reversed: you pay little interest but repay more on the principal. Because you pay less and less interest over the lifetime of the mortgage, and you can deduct mortgage interest from your income for tax purposes, this tax benefit you receive will decrease each month. This results in higher net monthly costs.
Linear mortgage
This mortgage type is similar to an annuity mortgage, but with one important difference: the monthly costs fall during the lifetime of the mortgage.
Repayments on the principal will stay the same during the lifetime of the mortgage. Consequently, interest payments will decrease and as a result the tax benefit you receive falls as well. Monthly net costs decline gradually.
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Interest only mortgage
As the name suggests, with an interest-only mortgage you do not repay the mortgage. You only pay interest.
This benefit of this type is that your monthly net costs are lower compared to the other types. A disadvantage of an interest only mortgage is that the mortgage is not hedged with either repayment or insurance. The interest-only mortgage can however be an interesting type if the value of the house is more than adequately sufficient.
(Bank) savings mortgage
A bank savings morgage combines your mortgage with a savings product in which you save monthly amounts that will be used to repay your mortgage at the end of the term. This type of mortgage nowadays is less common to use due to changing fiscal rules, but was popular for its tax advantages.
Which type of mortgage is a match for me?
Choosing the right mortgage depends various facors such as your income, risk tolerance and what plans you have in the future. Are you expecting to have children at a certain point of time in the future or your income to rise? Usually younger families choose for the annuity mortgage type. Those who are closer to the retirement age or with high incomes tend to likely choose for a linear mortgage due to faster repayment. Interest-only mortgages suit those seeking low initial costs but who have repayment strategies in place. Combining mortgage types is also possible to balance flexibility and costs.
