Interest-only
mortgage
The name of this previously popular mortgage form already reveals its main advantage.
During the entire term of the interest-only mortgage, you do not have to repay anything. This is done in one go at the end of the term. Repayment before the end of the term only occurs in the event of selling the home or taking out a new mortgage. The term of an interest-only mortgage is usually the standard 30 years. During the term of an interest-only mortgage, you only pay mortgage interest on the amount borrowed.
Higher interest rate for interest-only mortgage
Why is it that the interest-only mortgage is no longer so popular these days? Since 1 January 2013, strict regulations have made it impossible to claim mortgage interest deduction for a new interest-only mortgage. So it is still possible to take out this type of mortgage. But keep in mind that most lenders charge a higher interest rate for an interest-only mortgage than for the average linear or annuity mortgage. Expect at least 0.1% more mortgage interest, but for long fixed-rate periods this can be a slightly larger difference. So keep this in mind when you want to calculate your interest-only mortgage.
But up to 50% of the home value
If you want to take your 'old' interest-only mortgage with you when you move or want to transfer it to another mortgage provider, you will often have to deal with new financing rules. For the interest-only mortgage, it specifically applies that it may not exceed 50% of the market value of your home (exceptions are possible in some situations when transferring the mortgage). A while ago, there was a lot of commotion surrounding the interest-only mortgage. Many consumers who took out the then popular mortgage form in the nineties did not sufficiently take into account the repayment that must take place after 30 years. Lenders are now actively approaching this target group, in order to prevent nasty surprises at the end of the term of the interest-only mortgage.
Advantages of the interest-only mortgage
-
You have a larger spending space during the term of the mortgage (lower monthly payments). You can easily change the form with most lenders to a mortgage with a fixed repayment form when you have more room in your disposable income.
Disadvantages of the interest-only mortgage
You pay a lot of interest because you do not repay in the meantime;
You will never own a home that is completely mortgage-free;
You have a greater chance of residual debt after sale due to a decrease in the value of the home;
You must be able to repay the entire mortgage amount at once at the end of the term. Or take out a new mortgage for the remaining part at that time. Your income will be assessed at that time.
