Will be the interest-only mortgage a danger? There are good reasons to keep the particular mortgage interest-only, but also several persistent misunderstandings.
Repayment-free mortgage discussion stage
In the Netherlands, 1 ) 1 homeowners have a (fully or partially) interest-only home loan. Because of the low monthly problem and high mortgage curiosity deduction, these homeowners wish to keep their mortgage redeemable, even if they are going to refinance.
Banks and the authorities are doing their best to convince homeowners to pay off, for example using the redemption campaign. They mention that a high mortgage in late the term is risky.
Retain or repay the particular interest-only mortgage: it continues to be a point of discussion. All of us hear many good fights, but also persistent misunderstandings.
Misunderstandings about the interest-only mortgage
These are probably the most frequently heard misunderstandings regarding the interest-only mortgage.
1 . The interest-only home loan does not have to be repaid
This is incorrect. The majority of mortgage deeds state a finish date, usually 30 years. Following this economic term, the bank might claim the mortgage quantity. In practice, the bank will offer in order to refinance residual debt.
You are completely dependent upon the bank’s offer. They might require you to start paying off plus charge a higher mortgage curiosity. Extending the interest-only home loan is therefore not without having risk.
second . The penalty interest is definitely an obstacle to repaying
Research shows that the particular penalty interest is an important reason behind not paying off the home loan. This is striking because the space to repay the mortgage with no penalty is large these days:
- Yearly, 10% to 20% from the mortgage amount (depending for the lender) can be repaid without having penalty.
- Switching the current mortgage to annuity or linear repayment can also be free of penalties if it is continuing with the same bank for your remaining fixed-interest period.
3. The particular interest-only mortgage is the least expensive mortgage
Taking a look at the monthly payment, the repayment-free mortgage is definitely the cheapest. All things considered, you pay no pay back and you make optimal technique mortgage interest deduction. This particular tax benefit is relatively less now that the home loan interest deduction is being eliminated.
You spend the highest mortgage interest to have an interest-only mortgage. This is because loan companies charge an interest surcharge if they happen to be not repaid. In the long term you might be therefore more expensive with an interest-only mortgage.
four. I want to be able to use the assets freely
Having free assets is really a nice idea. Due to a mixture of low interest rates, inflation and probable capital gains tax, this particular capital is worth less each year. It can be interesting to partially repay the interest-only home loan to lower your tax. Suggestion: you can save in more ways simply by paying off.
Notice: you always need cost savings for unexpected expenses. Additionally, you will be slightly more expensive within the coming years with a completely or largely repaid home loan by reducing the ‘Hillen Act’.
five. The mortgage remains repayable in the event of a transfer
Homeowners with a home loan from before 2013 will keep it repayment-free when they are usually transferred. This is called the transition law. However , the repayment-free mortgage transfer is certain by rules.
The new interest-only mortgage should fit within the current home loan standards on income plus home value. In addition , numerous lenders and with NHG the particular mortgage may only end up being redeemable for 50% of the house value. See which banking institutions are ‘grace-free’.
Curious about whether transferring is helpful? Request a transfer review without obligation.
6. My interest-only home loan is not a risk due to the fact I have surplus value
When renewing the particular mortgage (after 30 years), lenders check the new home loan on income. This revenue can be lower, for example right after retirement. The mortgage curiosity deduction also expires right after 30 years. Your gross month-to-month charge thus becomes internet. The mortgage then techniques from box 1 in order to box 3. This means that the particular mortgage is tested a lot more strictly on the basis of income.
Even with surplus worth, the income test could be a stumbling block if you want to extend the particular mortgage.
Can be your interest-only mortgage future-proof?
If you have repaid or preserved, the answer to this question is usually ‘yes’. In a number of situations, repayment-free can become a risk, one example is if after the term the particular mortgage has been extended or maybe the interest deduction lapses.
Check your interest-only home loan on time. If it is necessary to construct in more certainty, the following can be applied: the earlier you start, the lower the particular impact on your monthly payment.