We like to say that different roads lead to the same castle. There are advantages and disadvantages of each type of mortgage, rather than one that is universally better.
That’s why we take time to know our clients to know their goals and circumstances and offer a variety of options with informed recommendations.
The types of mortgages available in the Netherlands are — annuity and linear (which are eligible for the interest tax deduction, renteaftrek), and interest-only.
- Level monthly payments
- Interest payments decline over time
- Zero debt at the end of the duration
With an annuity mortgage, you primarily pay the interest at the beginning of the mortgage period, which is tax-deductible, meaning your payments are usually lower.
Later in the mortgage, the period when most of the interest is paid, you’ll mainly pay back the loan – meaning while your gross payment (before taxes) is level, your net payment (after taxes) increases. As a result, this type of mortgage is recommended for those who expect your income to increase in the future.
- Repayments stay on the same amount
- Interest payments decline over time
- Zero debt at the end of the duration
With this type, you pay off the mortgage in equal installments with the monthly payment decreasing over time as the interest diminishes. In contract, you pay less interest with a linear than with an annuity mortgage.
If you expect that your income may decrease in the future, or you’re interested in paying off the mortgage as quickly as possible, you may prefer a linear mortgage.
- Level monthly payments
- You only pay interest during the duration
- Repay your debt at the end of the duration
In an interest-only mortgage, you only repay the interest on the mortgage, leaving the full debt to be repaid at the end of the term. Monthly payments are fixed as the total value of the mortgage stays constant throughout.
Interest-only mortgages are a good option if you expect that your assets will be sufficient for covering the total mortgage in the future. The maximum interest-only mortgage available is 50% of the property’s value.
Which type of interest rate is best?
We advise our clients to decide on is whether to opt for a fixed or a floating interest rate.
Fixed-rate mortgage
The interest rate on a fixed-rate mortgage does not change until the term of the fixed-rate period expires. This means your monthly mortgage payment will remain the same aside from some fluctuation due to taxes or homeowners’ association fees. If you’re settling into your career, have a growing family and are ready to set down some roots, a 20- or 30-year fixed-rate mortgage might be your best bet, as you’re protected against increasing interest rates in future.
Floating interest rates
Floating interest rates reset at specific intervals and are typically lower than a fixed rate. As a result, your monthly payment could increase or decrease depending on the capital market or other circumstances, such as if a mortgage lender wants to attract new clients or close their doors for a while. Floating interest rates are best if you expect that rates might decrease in the future.
Should I pay off my mortgage early?
Early repayment charges may apply if you want to pay off your mortgage before the term. This is because your mortgage lender is losing out on expected interest. Similarly, if you would like to overpay on your mortgage—either monthly or with one-off payment—you may have to pay an overpayment charge (boeterente). However, a certain amount of overpayment is ‘free’, i.e. it doesn’t incur a charge. This is usually between 10 and 20%, depending on your lender.
What documents are required for a Dutch mortgage application?
The documents required for your mortgage application depend on your personal situation.
In general, Dutch mortgage lenders require information on:
- Clients – background, nationality, residence permits, marital status
- Finances – income, financial obligations, assets, debts
- Property – value, maintenance, homeowners’ associations, ground lease
After your meeting with our advisors, we’ll compile a full list of documents that are tailored to you.
