The life mortgage is a type of mortgage that actually consists of an interest-only mortgage combined with life insurance. The policy of this insurance is pledged to the mortgage. This means that at the end of the term the insurance is used to pay off the mortgage or that the mortgage is repaid in the event of death. This mortgage, like other mortgages, has advantages and disadvantages. The life mortgage is actually an interest-only mortgage with life insurance. The premium for this mixed insurance consists of:
- Premium for risk insurance ; benefit in case of death.
- Amount saved to repay at the end of the term.
The insurance policy must be pledged to the lender. This makes the lender the beneficiary and is therefore certain that the policy will be used to repay.
There are two types of policies:
- Policy without profit sharing, where you receive interest on the amount saved.
- Policy with profit sharing, where, in addition to the basic interest rate, you receive part of the profit that the insurer makes from investing the saved amount.
Without profit sharing
With a policy without profit sharing, it is easy to calculate how much needs to be saved to have enough accrued at the end of the term.
With profit sharing
With a policy with profit sharing, you basically have to deposit less to arrive at the same amount, but you do run a risk. The insurer’s profit may be disappointing, meaning that not enough has been accrued at the end of the term.
Advantages of a life mortgage:
- Mortgage interest deduction is maximum for the entire term
- Policyholder shares in insurer’s profits (with profit-sharing policy)
- Gross and net costs remain constant
Disadvantages of a life mortgage:
- Uncertainty about payment at maturity date
- Uncertainty about the surrender value in the event of premature termination
- tax-free under certain conditions
From 2013, you will be required to make repayments on new mortgages to qualify for mortgage interest deduction. Starters can therefore only choose from the linear and annuity mortgage. People who already had a life mortgage can continue with this type of mortgage.
- Interest-only mortgage: no repayments during the term
- Savings mortgage: advantages and disadvantages of this mortgage
- Investment mortgage: mortgage with capital insurance