New times call for new insights. Due to the sharp drop in house prices in combination with mortgage types that do not require early repayments, additional repayments have become necessary for more and more homeowners. In the past, mortgage types were based on rising house prices. The repayment of the mortgage debt was postponed as much as possible to the end date of the mortgage. Due to the continued rising house prices, houses could simply be sold even though the mortgage debt had not yet been paid off. Since 2008 it has become clear that house prices can also fall sharply. To prevent the owner-occupied home from being unsellable, the mortgage debt must be paid off early.
House has become unsellable and unaffordable
Two-income couples have the option to take two incomes into account when determining the maximum mortgage amount that can be granted. However, this does entail certain risks. When the monthly costs can no longer be met due to, for example, unemployment or disability, the house must be sold. If the house cannot be sold because the debt is higher than the sales proceeds, a problem arises. The house cannot be maintained due to the high mortgage costs, but the house cannot be sold either. If house prices continue to fall, the problem will become worse. When sold, an ever-increasing residual debt arises. The only solution seems to be to increase income again so that the costs can be borne again. To prevent such a situation, you can start paying off the interest-only mortgage.
Repayment out of necessity
Paying off your mortgage early is not possible for most homeowners. The mortgage costs are adjusted to the maximum amount that can be released for housing costs. Repayments must involve substantial amounts, otherwise the additional repayments will hardly have any added value. You will have to repay at least a few thousand euros extra each year to effectively reduce your monthly costs.
Is extra repayment wise?
It is not advisable to make additional repayments in all mortgage types. For example, the savings mortgage is a type of mortgage that ensures full repayment of the mortgage debt. Additional repayments may result in the final payment from the linked endowment insurance being higher than the mortgage debt. As a result, tax may be due on the amount to be paid out. The interest-only mortgage is the mortgage type par excellence in which repayment is sensible. No capital is built up to repay this debt at the end date. This type of mortgage will always exist until the house is sold. Before you make repayments, it may be wise to first contact your mortgage advisor for advice.
Don’t save, but pay off
In 2012, savings interest rates were low. There were banks that offered savings interest rates of up to 2.5%, but most banks remained below 2%. Because of this and the poor housing market, more and more homeowners started paying off their mortgages. They have difficulty with types of mortgages taken out in the past. Converting the mortgage costs money and results in higher monthly costs. By making extra repayments you keep your money at your disposal and you can decide when to make extra repayments. In times of low savings interest rates, other investments are sought. The choice is increasingly made to invest to reduce the mortgage.