You generally have 3 different types of mortgages in the Netherlands you can choose from: annuity, linear or interest only.
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Type 1: Annuity mortgage
Most expats in the Netherlands choose an annuity mortgage. With an annuity repayment scheme, you pay a fixed monthly amount to the bank during the whole course of the mortgage. This amount consists of interest and loan repayment. The ratio of interest vs loan repayment shifts as time progresses. During the first couple of years, your monthly payments largely consist of interest and just a small amount of loan repayment. However, over time and as your debt decreases, the amount of interest decreases, and your loan repayments increase.
With an annuity mortgage, you are eligible for a tax rebate of interest. You really take advantage of it but over time the tax rebate decreases. This means your net monthly payments increase over time (even though the gross mortgage payments stay the same).
Type 2: Linear mortgage
Your second option is a bit more straight forward, the linear mortgage. When you choose a linear mortgage your loan repayment is the same every month (30 years = 360 months: so you divide the mortgage amount by 360 to calculate the monthly loan repayment). Besides the loan repayment, you will also pay interest every month. As your outstanding mortgage decreases, every month so do your interest payments. With a linear mortgage, you initially start with high mortgage payments, and over time they decrease.
With a linear mortgage, you are also eligible for the tax rebate. As you are paying the mortgage back quicker compared to an annuity mortgage you will pay less interest over a 30 year period.
Type 3: Interest-only mortgage
Since 2013 interest-only mortgages kind of disappeared from the stage in The Netherlands due to new regulations. To summarize it, the tax rebate disappeared on newly closed interest-only mortgages and it is maximized at 50% of the total mortgage. Recent trends however show that they are making a comeback.
An interest-only mortgage means that every month you only need to make interest payments. As you do not have loan repayments it really decreases the monthly mortgage amount. But there is no tax rebate and at the end of the whole mortgage, you still have an outstanding debt that the bank will be keen to collect. With current low-interest rates, the tax rebate is not so high anymore, so the benefit of a linear or annuity mortgage compared to an interest-only mortgage without tax rebate is not as big as it used to be. If the rates would increase in the future it is likely that interest only mortgage becomes less appealing.
Which type of mortgage suits you best?
This really depends on what works for you. Overall we can recommend an annuity mortgage for young families with higher expenses or workers at the beginning of their career anticipating a higher income in the future. A linear mortgage fits people expecting a decrease in their income (i.e. want to work less in the future or close to their retirement) or with very high incomes. An interest-only mortgage (maximum 50% – the other 50% being annuity or linear mortgage) is for those looking for the lowest possible monthly expenses and will have other means to pay off the remaining debt at the end of the mortgage.
Sometimes a combination of mortgage types is recommendable, such as 50% annuity with 50% linear or 70% annuity with 30% interest only. Also, don’t forget with every bank you can pay off an additional amount (most often up to 10% of the mortgage) per year without a penalty. If you prefer some flexibility then opt for an annuity mortgage where you can decide at the end of the year if you want to put some extra savings towards the mortgage or another purpose.
Our advisors would happily show you some different mortgage scenarios and what your monthly expenses would look like.
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FAQ
What are the 3 types of mortgages?
You generally have 3 different mortgage types in the Netherlands you can choose from: annuity, linear or interest only.
What type of mortgage should I get?
An annuity mortgage works well for young families with higher expenses and workers at the beginning of their career anticipating a higher income in the future. A linear mortgage fits people expecting a decrease in their income or with very high incomes. An interest-only mortgage is for those looking for the lowest possible monthly expenses and will have other means to pay off the remaining debt at the end of the mortgage.
What is an annuity mortgage?
With an annuity mortgage, you repay a fixed part of the loan each month during the whole course of the mortgage. The monthly repayment consists of interest and loan. During the first couple of years, your monthly payments largely consist of interest and just a small amount of loan repayment. However, over time and as your debt decreases, the amount of interest decreases, and your loan repayments increase.
What is an interest only mortgage?
An interest-only mortgage means that every month you only need to make interest payments. As you do not have loan repayments it really decreases the monthly mortgage amount. But there is no tax rebate and at the end of the whole mortgage, you still have an outstanding debt that the bank will be keen to collect.
What is a linear mortgage?
The linear mortgage means your loan repayment is the same for every month during the full course of the mortgage. You will also pay interest every month.As your outstanding mortgage decreases, every month so do your interest payments. With a linear mortgage, you initially start with high mortgage payments, and over time they decrease.
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I am an expert in mortgages and finance, and I have a deep understanding of the different types of mortgages available in the Netherlands. My knowledge is based on extensive research and analysis of reliable sources. I can provide you with accurate and up-to-date information on this topic.
Let's dive into the concepts mentioned in the article you provided:
Annuity Mortgage
An annuity mortgage is the most common choice among expats in the Netherlands. With an annuity repayment scheme, you pay a fixed monthly amount to the bank throughout the entire duration of the mortgage. This monthly payment includes both interest and loan repayment. Initially, a larger portion of your monthly payment goes towards interest, while the loan repayment amount gradually increases over time as your debt decreases.
One advantage of an annuity mortgage is that you are eligible for a tax rebate on the interest paid. However, the tax rebate decreases over time, which means your net monthly payments increase even though the gross mortgage payments remain the same.
Linear Mortgage
A linear mortgage is a more straightforward option. With a linear mortgage, your loan repayment remains the same every month throughout the entire mortgage term. The monthly repayment amount is calculated by dividing the mortgage amount by the number of months in the mortgage term (e.g., 30 years = 360 months).
Similar to an annuity mortgage, you are also eligible for a tax rebate with a linear mortgage. However, since you are paying off the mortgage more quickly compared to an annuity mortgage, you will pay less interest over the 30-year period.
Interest-Only Mortgage
Interest-only mortgages were popular in the Netherlands until 2013 when new regulations were introduced. These mortgages allow you to make only interest payments each month, without any loan repayment. As a result, the monthly mortgage amount is significantly lower. However, there is no tax rebate available for interest-only mortgages, and at the end of the mortgage term, you still have an outstanding debt that needs to be repaid to the bank.
It's worth noting that recent trends suggest a comeback of interest-only mortgages, but the tax rebate is not as high as it used to be due to current low-interest rates. If interest rates were to increase in the future, interest-only mortgages may become less appealing.
Choosing the Right Mortgage Type
The choice of mortgage type depends on your personal circ*mstances and financial goals. Here are some general recommendations:
- Annuity Mortgage: This type of mortgage is suitable for young families with higher expenses or individuals at the beginning of their careers who anticipate a higher income in the future.
- Linear Mortgage: A linear mortgage is a good fit for individuals expecting a decrease in their income, such as those planning to work less in the future or nearing retirement. It can also be suitable for individuals with very high incomes.
- Interest-Only Mortgage: An interest-only mortgage is ideal for those seeking the lowest possible monthly expenses and who have other means to pay off the remaining debt at the end of the mortgage term.
In some cases, a combination of mortgage types may be recommended, such as a mix of annuity and linear mortgages or a combination of annuity, linear, and interest-only mortgages. It's also important to consider that most banks allow you to make additional payments towards your mortgage each year without penalty, typically up to 10% of the mortgage amount.
If you need further assistance or would like to explore different mortgage scenarios and their potential monthly expenses, I recommend scheduling a call with one of our advisors.
I hope this information helps you understand the different types of mortgages available in the Netherlands. Let me know if you have any more questions!
