From 2013 onwards it will be mandatory to make monthly mortgage payments. This obligation does not apply to mortgages taken out before 2013. However, it is wise to make a repayment plan for the interest-only mortgage. More than half of current mortgages are partly interest-only. This type of mortgage has the advantage that the monthly costs are low. A disadvantage is that this mortgage will not be paid off until the house is sold. In a housing market with falling house prices, the disadvantage has become even greater. The mortgage debt is not reduced, but the house is worth less. As soon as the mortgage debt exceeds the sales value of the house, the house becomes unsellable. Anyone with an interest-only mortgage must take this into account. It may be wise to pay off the interest-only mortgage on your own initiative.
Convert mortgage or pay it off yourself?
From 2013, new mortgages include a mandatory monthly mortgage debt repayment. This obligation does not apply to existing mortgages. Yet more and more homeowners are deciding to reduce their debts in the meantime. You can convert the mortgage into a form in which you can repay, but you can also create your own repayment plan. By mapping out your goal, you know what you need to repay annually to achieve your goal.
Pay off an interest-only mortgage
Paying off a mortgage is a process that you must take your time. This generally concerns high mortgage debts that cannot be repaid within a few years. Creating a plan will help you know how to move toward your goal. For example, your mortgage still runs for 20 years. You have an interest-only mortgage of 80,000. You want to have this paid off in full within 20 years. You want to avoid having to pay mortgage interest after your retirement. You can put together the goal in a simple way. By repaying €4,000 annually on your interest-only mortgage, you can prevent a debt remaining after the end of the mortgage term. Another option is to build up savings in a savings account. A disadvantage of this is that you owe capital gains tax on large savings assets. It is better to start repaying annually. An additional advantage is that your monthly costs will also decrease.
Convert a mortgage or keep the initiative yourself
At the end of 2012, many homeowners decided to convert the old mortgage type(s) to a mortgage type that ensures full repayment of the mortgage. After April 1, 2013, this conversion is still possible, but the choice of mortgage types is severely limited. The new mortgage must contain a monthly (annuity) repayment. A good alternative is to arrange the repayment yourself. Firstly, you do not have to incur any costs to convert the mortgage and secondly, you are more flexible if you retain the initiative to repay or not.
Seek advice from a mortgage advisor
Decisions regarding the mortgage can be major decisions. It is wise to contact your mortgage advisor if your life situation or wishes change. He or she can advise you on the best way to deal with your financial situation. The best solution for one person does not necessarily have to be the best solution for the other.