Residual debts deductible for 10 years but unaffordable

At the end of 2012, 800,000 owner-occupied homes were underwater. These houses cannot be sold without residual debts. To compensate former homeowners with residual debt, the interest charges on residual debts are deductible for a period of 10 years after sale, but the charges are still high. Buying a house is a good investment, but there are risks involved. The value of a house can rise sharply, as was the case in the decades before 2008, but house prices can also fall sharply. Mortgages taken out in the past were based on rising house prices. During the term of the mortgage, the mortgage debt was not paid off, but savings were made so that it could be repaid in full or in part at the end date in one go. This keeps the mortgage debt at a maximum. As soon as the sales price of the house falls below the mortgage debt on the house, the house becomes unsellable.

Mortgage with or without NHG?

Homeowners who are forced to sell a house with a residual debt can, under certain conditions, rely on the National Mortgage Guarantee (NHG). This is only possible if the mortgage has been taken out under the conditions of the NHG. In other cases, residual debts simply have to be paid by the former homeowners.

Not a mortgage, but a consumer credit

After the sale of the house, the residual debts must be financed in a different way. Most banks will transfer the debts to consumer credit. After all, the collateral has been sold, so it is officially no longer a mortgage loan. The disadvantage of a consumer credit is the amount of interest to be paid. In a mortgage with a fixed interest period of ten years, the mortgage interest rate is approximately 4% to 6%. The interest charges for a consumer credit are between 8% and 10%. In addition, the term will also be shorter. The debt must be repaid in a relatively short period of time. Since January 1, interest costs have been tax deductible for a period of 10 years, but that is little consolation.

Can the burden of a financed residual debt be borne?

This is best explained using an example. A house is sold with a residual debt of 20,000. The former homeowners agree with the bank to repay this debt over a period of seven years. The residual debt is financed in a personal loan with an interest charge of 8%. Monthly repayments must be made to the bank: 20,000 / 84 months = 238.10. The interest charge for the first month is: 20,000 x 8% = 1,600 / 12 = 133.33. The total expense for the first month is: 371.43, of which 133.33 is deductible. After the first month, part of the debt is paid off, which reduces interest costs. During the term, the monthly repayment will continue to amount to 238.10.

Residual debts cannot be paid in addition to the monthly fixed costs

A house is often sold at a loss because the monthly costs of the house can no longer be met. Selling the house with a residual debt will not provide a solution in most cases. After selling the house, the interest and debt repayments must be affordable in addition to the fixed monthly costs. Homeowners can find themselves in a hopeless situation due to falling house prices. For example, the mortgage costs can no longer be met and the house cannot be sold. They are, as it were, stuck with a house that they can no longer afford.