What type of Dutch mortgages are available?

Real estate mortgage concept

If you are looking to stay in the Netherlands for some time, you may be interested in buying a property. We will have a look at the different types of mortgage that are available.

What types of mortgages are available in the Netherlands?

These days, there are two main types of mortgage in the Netherlands: a linear mortgage or an annuity (repayment) mortgage.

Linear mortgage (lineaire hypotheek)

A linear mortgage is a mortgage by which you repay the same amount of capital every month during the term. You therefore pay off your linear mortgage evenly. The amount you pay depends on the amount of the loan and the term of the mortgage. Interest will reduce during the life of the mortgage.

  • How does it work?

Your mortgage debt decreases every month. As a result, the mortgage interest you have to     pay during the term also decreases. You pay the interest on the remaining debt. Because the    mortgage is getting smaller and smaller, you also have to pay less and less interest. This also    means that your tax benefit decreases during the term. In the beginning you have a lot of interest deduction, later less.

  • Characteristics of a linear mortgage
  • The mortgage has a fixed end date
  • During the term you repay the same amount of capital every month
  • You have certainty that you will redeem the mortgage
  • Repayments and interest (your gross monthly payments) are high in the beginning and low at the end

Annuity or repayment mortgages (annuïteiten hypotheek)

An annuity mortgage is a mortgage in which the monthly sum of interest plus repayment remains the same for the entire term. In the beginning of the term you pay a lot of interest and as the mortgage progresses you will repay more of the capital. The entire mortgage will have been repaid on the end date.

  • How does it work?

The lender works out the amount you need to repay each month to clear your mortgage by the end of an agreed term. Your monthly repayment is made up of two parts:

  • An interest payment on the loan (will reduce over time)
  • A capital repayment (increases over time)

In the early years, most of your repayments will go toward paying off interest on your mortgage. But as your mortgage reduces, the interest part of the repayment goes down. So as time goes on, more of your monthly repayments go toward paying off the capital.

  • Characteristics of an annuity mortgage
  • The mortgage has a fixed end date
  • You repay capital periodically during the term
  • You have certainty that you will redeem the mortgage
  • Your (gross) monthly payments remain the same every month during the life of your mortgage

Other useful mortgage facts

It is worth noting that each type of mortgage has different tax implications, as the amounts of interest you pay at varying times in the life of your mortgage will vary.

AS a rule, most mortgages in the Netherlands are arranged for between 20 and 30 years, although some 10-year mortgages remain available.

Most borrowers opt for an annuity mortgage, as they know that the gross amount they will be paying every month will remain the same (on a fixed rate mortgage). In some cases, variable rate mortgages or mortgages with a combination of fixed and variable rates (usually called split rate) are also available.

A linear mortgage can be useful for people who wish to repay their mortgage as quickly as possible and who are expecting a reduction in income sometime in the future. However, the monthly mortgage payments are relatively high in the beginning.

Are there other mortgage types available?

In 2013, there were some important changes in the way mortgages are taxed, and therefore the only types of mortgages that are still eligible for interest tax deduction (renteaftrek) are the annuity and linear mortgage models, whereby the loan needs to be repaid within 30 years via monthly repayments. Alternative mortgage models may not be eligible for mortgage tax relief.

Want to know more?

FVB de Boer specialises in mortgage solutions for expats and offer independent, unbiased, and expert financial guidance on mortgages, insurances, pensions and other financial issues. Give us a call today to see what we can do for you.