In the Netherlands, there are multiple types of mortgages. The most common mortgages are linear and annuity mortgages. In this blogpost, we will explain what an annuity mortgage entails, and why they are a financially appealing choice.
What is an annuity mortgage?
With annuity mortgages, your monthly expenses remain a fixed amount. These expenses consist of an interest payment on the loan and a principal payment. In the beginning you pay off a small amount of the initial capital loan and you mostly pay interest. The interest you pay is tax deductible (certain conditions apply).
Increasing net monthly costs
Over time, the principal payment of your annuity loan increases and the interest payment decreases. Therefore, your tax return will decrease as well, casuing your net monthly costs to increase. For most people their salary increases the longer they work, which makes an annuity mortgage a good choice.
- Equal gross monthly costs;
- Increasing net monthy costs;
- Lower initial monthly costs compared to linear mortgage;
- Principal payment during the mortgage term.
Overpaying your mortgage
In any event, most lenders offer the flexibility to make annual overpayments of up to 10% of the original principal amount without incurring penalities. Overpaying your mortgage has the immediate benefit of reducing your monthly expenses.
Should I opt for an annuity mortgage?
For first time buyers, annuity mortgages are a popular choice because of the lower net costs in the beginning. They often expect their pay to increase over time, which will enable them to keep affording higher net costs later in the term.
Making this decision can be a tough choice, because the type of mortgage that suits you best depends on numerous factors. It is therefore always wise to discuss your options with a mortgage advisor. At Brickle, we are happy to analyse your finanical situation and help you make a suitable choice!