There are many mortgage options available with different advantages and disadvantages. The linear mortgage also has disadvantages, but it remains a form of mortgage that offers security. The investment mortgage in combination with the interest-only mortgage is a cheap mortgage variant. The mortgage debt payment is postponed to the end date. The intention of this combination of mortgage types is that the return on the investments is so high that the interest-only part can also be paid off in whole or in part. However, if the return remains low during the term, or even negative, a mortgage debt will remain at the end date. The linear mortgage is less favorable from a tax perspective, but offers major advantages.
What is a linear mortgage?
In a linear mortgage, an equal part of the mortgage is paid off annually. The mortgage interest payable depends on the remaining mortgage debt. When taking out a mortgage of 250,000 with a term of 30 years, the monthly repayment is: 200,000 / 360 months = 555.56 . In addition, the mortgage interest must be paid on the remaining debt. After each monthly payment, the mortgage interest payable is lower because part of the mortgage debt has been paid off.
Why are linear mortgages rarely taken out?
The biggest disadvantage of this type of mortgage is the amount of monthly costs in the first years. Over the years, monthly costs will decrease as part of the mortgage is paid off. It is usually not possible for starters to take out this type of mortgage. They generally still have a low income because they are at the start of their career.
Due to high monthly costs in the first years, less mortgage can be granted
When granting a mortgage, the bank pays attention to the monthly costs that homeowners have to pay. The costs are high in the first years, so the bank will be able to grant less mortgage compared to other types of mortgage.
Tax advantage of the linear mortgage
If you compare the tax benefit of the linear mortgage with, for example, the savings mortgage or the investment mortgage, it appears that the tax benefit is much higher for the latter two forms. By deferring the repayment of the mortgage debt to the future, the tax benefit remains maximum. The mortgage debt remains the maximum amount and the mortgage interest paid may be tax deducted during the mortgage term.
Linear mortgage, back to basics
In the past, the homeowners’ starting point was to get rid of their mortgage debt as quickly as possible. The mentality of the people has changed. It has become normal to have a debt to the bank. Problems arise when we lose all or part of our income. Many people have no problem taking out a top mortgage, with all the dangers that entail.
Alternative: the annuity mortgage
Another type of mortgage that also focuses on paying off the mortgage debt as quickly as possible is the annuity mortgage. With this type of mortgage you pay fixed monthly costs during the term, only the composition is different. In the first years you pay a lot of mortgage interest and the remaining part of the monthly costs are used for repayment. The part of the payments that is used for repayment will continue to increase, as the debt will become increasingly lower.