Many homeowners with an interest-only mortgage do not dwell on it: they too have to pay off the mortgage after 30 years. How are they going to do this?
A letter from the bank after 30 years
Homeowners with an interest-only mortgage also receive a letter from the bank at the end of the term. Therein the request to repay the remaining mortgage sum on the end date.
A mortgage contract is often concluded for a period of 30 years. You should not confuse this with the fixed-interest period, which applies to the mortgage interest payable. The mortgage must be fully repaid to the lender on the maturity date. This is stated in the conditions.
How are you going to repay the interest-only mortgage?
Repayment is not an option for the 1.1 million Dutch people with an interest-only mortgage. Because they do not repay the mortgage during the term or only partially, there is a residual debt on the maturity date.
To repay the mortgage you can of course sell the property. However, if you want to continue living in the home and you do not just have the mortgage on your savings account, you must enter into a new mortgage contract.
Financing residual debt interest-only mortgage
Financing a residual debt after 30 years can cause problems in two ways:
You may not be able to re-finance the full mortgage amount:
- The mortgage standards are becoming stricter, which means you can only borrow 100% of the home value. From Nederlandsche Bank and AFM regulator, among others, even insisting on further reduction to 90%.
- After your 56th birthday, banks will take into account the lower retirement income, which means you may be able to borrow less.
- After 30 years, the mortgage moves from box 1 to box 3, so that it is tested more strictly for income.
The monthly payments of the new mortgage can be higher:
- Your net monthly payment increases because the mortgage interest deduction expires after 30 years. The gross monthly charge becomes net.
- The mortgage interest is now low, but is expected to rise in the future. In addition, many banks nowadays charge a surcharge if you opt for redemption.
- Also, the entire mortgage may not be repayment-free.
Reduce the risk of interest-only mortgage
No full financing and higher monthly payments lead to an increased risk of payment problems with an interest-only mortgage. Certainly if the end date matches a lower income, for example after retirement.
Homeowners with an interest-only mortgage are advised to start paying off. The earlier you start, the more you can pay off and the smaller the impact on your monthly payment. You have roughly 3 options:
- You can easily start repaying by using part of your savings to repay the mortgage. Due to the low interest rates, this hardly pays off. You can repay up to 20% penalty-free at most banks.
- Anyone who wants to make structural repayments can convert his or her mortgage type. If you do this at the same bank for the remaining term, this is also free of penalties.
- If you want to tackle it thoroughly, you can choose to reschedule. You can then completely rebuild the mortgage, including the lowest interest rate in the market. Despite the penalty interest, this can be the most advantageous at the bottom of the line.
A mortgage adviser can help you make the right choices.
A lower risk and a lower mortgage interest
Repaying can, in addition to a lower risk, also lead to a lower mortgage interest rate.
- The mortgage amount in relation to the property value is lower, making you eligible for an interest discount.
- If you choose to change the mortgage type to annuity or linear repayment, you avoid an interest surcharge.