Do you have an amortization free mortgage? Then it is important to know that the policy around this type of mortgage is changing. De Nederlandsche Bank (DNB) wants lenders to be stricter with interest-only mortgages. Rabobank and Obvion were the first to tighten their policies. This has consequences for those who want to renew an amortization free mortgage, transfer or take out a new mortgage. In this article, you can read what is changing and what this means for your situation.
An amortization free mortgage is a type of mortgage where you only pay interest during the term. You pay nothing off. The debt therefore remains the same. At the end of the term, you must repay the mortgage all at once, for example with savings, investments or by selling the home. This type of mortgage has been taken out a lot for years because of the low monthly payments. As a result, many homeowners still have a (partly) amortization free mortgage.
⚠️ With a life, hybrid or savings mortgage, the target capital is not always fully reached; the amount that remains is considered an interest-only mortgage at the end date.
Around 45% of all Dutch mortgages are (partly) amortization free. That share is falling, but is still high internationally. According to DNB, this involves risks. Not just for homeowners, but also for banks. That is why DNB is calling on lenders to tighten their policies and look more closely at the long-term risks.
DNB identifies two important risks.
With an amortization free mortgage, the debt remains the same. Reimbursement often depends on the value of the home. If that value falls, residual debt can arise. In practice, this risk will be limited for many households, but it remains a focus.
The monthly payments may increase in the future, for example if your pension income is lower, the interest rate rises when renewed, or the future mortgage interest deduction changes or expires. In addition, the future mortgage interest deduction also plays an important role in the long-term affordability of your mortgage. Many lenders and homeowners still have insufficient insight into this. Because since 2001, you have received a maximum of 30 years of mortgage interest deduction, the first interest-only mortgages will have the consequences from 2031.
DNB sees risks mainly in the periods 2035—2038 and 2047—2052. During these years, many interest-only mortgages expire and households have to repay or refinance their mortgages. At the same time, there are also mitigating factors. Dutch households often have pension assets and many homeowners have excess value. Do you want a quick insight into this? Please *contact* us and have one of our experts calculate your situation
Rabobank and Obvion were the first lenders to change their policies. These new rules apply to:
• new mortgages;
• mortgage increases;
• extend the interest-only mortgage at the end of the term.
Existing mortgages that are not being adjusted remain out of harm's way. According to the new policy of these two lenders, an amortization free mortgage can still amount to a maximum of 30% of the home value, with a maximum of €150,000. It is expected that other lenders will follow this policy in the long run.
The stricter policy mainly has consequences if you want to adjust your mortgage, for example when moving, transferring or withdrawing excess value. When it comes to a new mortgage, homeowners with a large amortization free mortgage have to (partially) switch to a different type of mortgage, such as an annuity or linear mortgage. With an annuity or linear mortgage, you repay monthly, so that your mortgage debt gradually decreases. The monthly costs are then higher, but you do build up wealth and reduce the risks in the long term.
Waiting until the end of the term is often not wise. By already looking at your type of mortgage:
• you get insight into your future affordability;
• avoid surprises when extending or moving;
• respond to changes in interest rates and the future mortgage interest deduction.
Whether you want to renew your interest-only mortgage, switch to an annuity or linear mortgage, or just want to know where you stand: personal advice makes the difference. Schedule an informal meeting in Breda, Leiden, Dongen or one of our other locations and get informed. Prefer online? That is also possible, of course.
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