As of 2013, there are still two permitted types of mortgage, namely the linear mortgage and the annuity mortgage. The mortgage types in which the repayment is postponed to the end date can no longer be taken out again, at least if you wish to benefit from the mortgage interest deduction scheme. As of 2013, the mortgage interest deduction scheme is limited. Only newly concluded mortgage types with an annuity or linear repayment are still permitted. The biggest disadvantage of these mortgage types is the high monthly costs, but there are certainly many advantages as well. The annuity mortgage in particular has major advantages.
What is an annuity mortgage?
In this mortgage type, a fixed amount is paid monthly. The payment consists partly of mortgage interest and the remaining part is intended for repayment of the mortgage. Because the mortgage debt is paid off monthly, mortgage interest will gradually decrease and an increasing portion will be used to repay the mortgage debt.
Annuity mortgage or a linear mortgage?
The most logical choice is the annuity mortgage. The linear mortgage has the disadvantage that the monthly costs start high and only decrease over the years. In this mortgage type, the total mortgage debt is spread over 360 months. In the first years, in addition to a high repayment amount, mortgage interest must also be paid on a still high mortgage debt. Below we explain the benefits of the annuity mortgage in more detail.
The annuity mortgage offers constant monthly payments
During the current fixed interest period you know where you stand in terms of the monthly costs. The gross monthly costs remain the same. Because the share of repayments in the monthly costs increases, the tax benefit decreases. The net costs increase, but the gross costs remain the same.
Mortgage debt is gradually decreasing
In the first years of the mortgage term, the mortgage debt gradually decreases, but over the years the repayment process becomes increasingly faster. The repayment makes you as a homeowner more resistant to declines in the value of your home. This reduces the chance of residual debts when you sell the house again.
The debt is paid off at the end date of the mortgage
In the past, there has been too much reliance on house price increases. After the dip in house prices, it has become clear to everyone that the interest-only mortgage, for example, has major disadvantages. The soundness of our pensions is crumbling. This makes it necessary to ensure that you no longer have to pay for a mortgage after retirement.
Extra repayments attractive in the annuity mortgage
An extra repayment will immediately result in lower monthly costs. Firstly, the amount you have to repay monthly decreases over the remaining term. In addition, the mortgage interest is calculated on a lower mortgage debt. Most mortgages allow an additional repayment of between 10 and 15 percent of the principal amount.
Mortgage interest paid is deductible
From 2013, only the mortgage interest on a linear mortgage or an annuity mortgage may be deducted for newly concluded mortgages. The future of the mortgage interest deduction scheme is uncertain. It is expected that the requirements for deductibility will be further tightened in the near future. Further restrictions on the tax scheme will probably affect mortgage types in which the repayment has been postponed to the future. The annuity mortgage will most likely remain unaffected initially.