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Only pay the interest each month
Interest-only mortgages are common in the Netherlands. The main feature of this mortgage is that you don’t make any repayments and don’t accrue any capital, i.e. your mortgage debt remains the same. We’ve summarised the risks and things you need to watch out for. Read on to find out more about the interest-only mortgage.
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Interest-only mortgages explained
With our interest-only mortgage, you pay only mortgage interest each month; you don’t make any repayments. At the end of the term, you must repay the mortgage in full. If you take out an interest-only mortgage now, you can borrow up to a maximum of 50% of your property’s market value.
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Repay your mortgage at the end of the term
With an interest-only mortgage, you are responsible for raising the money needed to repay your mortgage in full on the maturity date. You can do this by saving up or investing during the mortgage term, or by selling your home. Read more about the risks of an interest-only mortgage or do the mortgage check to find out where you stand with your current mortgage.
Interest-only mortgage features
Fixed monthly payment
You pay only mortgage interest each month. If your mortgage interest stays the same, your monthly payment will stay the same. At the end of the term, you must repay the mortgage in full in one single payment. You can make additional repayments during the term.
Decreasing tax break
On certain conditions, you can deduct the mortgage interest you pay from your taxable income. On 1 January 2013, new rules governing the mortgage interest deduction came into force, which may change the scope of this tax break for you.
Repayment at end of term
At the end of the term, you will have only paid interest and will need to repay the entire mortgage in one single payment. You can also make additional repayments during the mortgage term.
Interest rates
Frequently Asked Questions
With our interest-only mortgage, you pay only mortgage interest each month. Until the end of the term, your monthly payments will not go towards paying off the mortgage loan, unless you decide to make repayments yourself. This means that your mortgage debt will remain the same. The mortgage interest you pay will also stay the same, provided the rate of interest does not change. At the end of the term, you must repay the mortgage in full, using your savings, for instance, or with the proceeds from the sale of your house. This involves risks, as you can’t be sure that the proceeds from the sale will be enough to pay off your mortgage.
With the interest-only mortgage, you have a choice between a fixed and a variable interest rate. Check the current mortgage interest rates.
Since 1 January 2013, new rules came into effect for the tax break that allows you to deduct the mortgage interest from your taxable income. These new rules may affect the scope of this tax break for you.
- If you took out the interest-only mortgage before 1 January 2013, you can deduct the interest you pay on your mortgage from your taxable income, provided you meet certain conditions. The interest-only mortgage will then continue to offer you a tax break.
- However, if you took out the interest-only mortgage after 1 January 2013 or are currently considering taking out an interest-only mortgage, you will not be able to deduct the mortgage interest from your taxable income.
If you want to repay all or part of your interest-only mortgage before the end of the term, you can read all about repayments here.
With an interest-only mortgage, you pay off the mortgage loan in a single payment at the end of the term. During the term, you only pay interest and don’t make any repayments. You are responsible for ensuring that you have enough money to repay the mortgage in full at the end of the term, using your savings, for instance, or with the proceeds from the sale of your house. This involves risks, as you can’t be sure that the proceeds from the sale will be enough to pay off your mortgage.
If the price of your home is below €435,000 , you can apply for the National Mortgage Guarantee.
The terms and conditions for your mortgage are very important. Always make sure you read the terms and conditions before you sign a mortgage offer.
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As an expert in the field of mortgages and financial instruments, I can confidently delve into the details of the interest-only mortgage concept discussed in the provided article.
Interest-Only Mortgages: A Comprehensive Overview
Interest-only mortgages are a financial tool commonly employed in the Netherlands. These mortgages have distinct characteristics that set them apart from traditional repayment mortgages. Allow me to provide a thorough breakdown of the key concepts mentioned in the article:
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Interest-Only Mortgage Basics:
- With an interest-only mortgage, borrowers are obligated to pay only the interest on the loan each month.
- No repayments are made towards the principal amount during the mortgage term.
- The mortgage debt remains constant throughout the term, and the borrower must repay the full mortgage amount at the end of the term.
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Loan-to-Value Limit:
- Borrowers can initially borrow up to a maximum of 50% of their property's market value with an interest-only mortgage.
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Repayment Responsibility:
- Borrowers bear the responsibility of raising funds to repay the entire mortgage at the end of the term.
- Repayment options include saving, investing during the mortgage term, or selling the property.
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Fixed Monthly Payments:
- Monthly payments consist solely of mortgage interest.
- The monthly payment remains constant if the mortgage interest rate remains unchanged.
- Additional repayments can be made during the mortgage term.
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Tax Breaks and Changes:
- Borrowers may be eligible for tax deductions on mortgage interest, subject to specific conditions.
- Changes in tax regulations, effective from January 1, 2013, may impact the scope of these tax breaks.
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Interest Rates:
- Borrowers can choose between fixed and variable interest rates for their interest-only mortgage.
- Interest rates can affect the tax break eligibility, depending on when the mortgage was taken out.
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Repaying the Mortgage:
- Borrowers have the option to make additional repayments during the mortgage term.
- Repayment can be in full or in part before the end of the term.
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Risk Factors:
- The primary risk lies in ensuring that funds are available to repay the entire mortgage at the end of the term.
- The uncertainty of property sale proceeds meeting the mortgage amount poses a potential risk.
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Dutch National Mortgage Guarantee (NHG):
- If the property's price is below €435,000, borrowers can apply for the National Mortgage Guarantee, providing an added layer of security.
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Terms and Conditions:
- Understanding and adhering to the terms and conditions of the mortgage is crucial.
- Prospective borrowers are advised to thoroughly review these terms before signing a mortgage offer.
This comprehensive overview aims to provide clarity on the interest-only mortgage concept, addressing its features, risks, and associated financial considerations. If you have any specific questions or if there are particular aspects you'd like to explore further, feel free to inquire.
