We have come to consider a monthly mortgage payment of 1,000 to 1,500 per month as normal. Both partners have to work to cover the mortgage payments, until things go wrong. In the past, house prices have risen sharply. In times of falling house prices we quickly forget this, but returns of 12% per year were no exception. Due to the explosive growth in house prices, we have started to borrow more and more to buy a house. Assuming prices continue to rise, this should not be a problem. As soon as house prices start to fall, financial problems can arise due to small price drops.
Top mortgage cannot withstand falling house prices
When buying a house, it was common to finance not only the purchase price, but also the additional costs. As a result, the mortgage was already higher than the value of the house from the moment it was closed. Assuming rising house prices, this will be corrected within a few years, but if house prices fall, a significant residual debt may arise within a few years when the house has to be sold.
You bought a house in 2008 for 225,000. The costs are financed in the mortgage, resulting in a total mortgage debt of 245,000. In 2012, the costs could no longer be met due to unemployment of one of the homeowners. Due to the decreased house prices, the house can be sold for 190,000. Due to a 15.6% decrease in the value of the house, a residual debt of 55,000 has arisen upon sale.
The mortgage costs are too heavy
Historically, buying a house is still a good investment. Until the fall in house prices in 2008, you had to dig deep into your pockets to buy a house. A logical consequence is that houses are purchased for high amounts and therefore high mortgage costs. When income drops, problems often arise in being able to bear the high costs. You can determine to what extent your mortgage is too much for your income by living on 70% of your income for a while.
How many weeks do you work for your mortgage?
To determine how much the mortgage weighs on your income, you should calculate in time how long you have to work to meet the mortgage payments. Suppose you earn €13 gross per hour and you work 36 hours a week. You have to pay 800 monthly in mortgage interest. Very simply put, you have to work 61 hours a month to be able to pay the mortgage interest. So you have to work for the house for almost two weeks. You should actually add the amounts you pay for premiums for the endowment insurance (or repayment) and the term life insurance.
How can you reduce mortgage costs?
In the past, most homeowners have consciously opted for stripped-down mortgage types, such as the investment mortgage and the interest-only mortgage. There is no way to cut back on this. You can effectively reduce your monthly costs by making additional repayments. It is not wise to make additional repayments in all mortgage types. It is wise to seek advice in advance from your mortgage advisor. The interest-only mortgage is a type of mortgage in particular where it is wise to make additional repayments.