What types of mortgage are there and what are the advantages and disadvantages?
If you are looking for a (new) mortgage, you can choose from the following four different forms;
- An annuity mortgage
- A linear mortgage
- An interest-only mortgage
- A (bank) savings mortgage
Each type of mortgage has its own advantages and disadvantages, and it depends entirely on your own situation and your future plans as to which suits you best.
To get some overview and clarity in the jungle of different mortgages, we discuss the pros and cons below to get a better idea of the options and forms.
Because since 2013 there are only two mortgage types for which you get mortgage interest deductions, the linear mortgage and the annuity mortgage, we discuss these two mortgage types first.
Annuity mortgage
An annuity mortgage is a mortgage where you always pay the same amount. At the beginning, you pay more interest and less principal. Toward the end of the mortgage, you pay less interest and repay more.
Advantages annuity mortgage
- You pay the same (gross) amount every month, so you know exactly where you stand with your monthly expenses.
- You pay part repayment and part interest. As a result, you thus pay off a small part of your home each month and it becomes a little more yours with each payment!
- If you can lock in this mortgage at a low interest rate, you’ll have a nice low monthly payment for years to come.
- Compared to a linear mortgage, you have lower monthly costs for the first few years.
Disadvantages of annuity mortgage
- Because, especially in the beginning, you only pay off a small portion, it takes a while before you make any real strides in paying off your home.
- Once your fixed-interest period ends, your monthly expenses change.
- Your net monthly expenses increase gradually over the term.
Linear mortgage
The linear mortgage works the same as an annuity mortgage. The difference is that your monthly payments are higher in the beginning than with an annuity mortgage because you pay off more and pay less interest.
Advantages linear mortgage
- Each month, your monthly amount gets a little lower because your mortgage debt gets a little bit less each month.
- You pay part repayment and part interest. As a result, you thus pay off a small part of your home each month and it becomes a little more yours with each payment!
- At the end of the term of this mortgage, you pay less interest than with an annuity mortgage.
Disadvantages of linear mortgage
- Compared to an annuity mortgage, you will have higher monthly payments for the first few years and, of course, you must be able to afford them.
- Once your fixed-interest period ends, your monthly costs may change.
Repayment-free mortgage
In addition to the two options above, there are also mortgage types where you pay off nothing and pay only interest. These forms are called installment mortgages. Again, there are several pros and cons.
Advantages of repayment-free mortgage form
- You only pay interest on your mortgage debt.
- As a result, monthly charges are often a lot cheaper than with other mortgage types.
- You may repay 10% of the mortgage penalty-free each year.
- You don’t have to repay your mortgage debt until the end of the term or you can then extend it again (by mutual agreement).
- If you took out an interest-only mortgage before 2013, you are probably entitled to mortgage interest deductions as usual. Even if you want to refinance the mortgage at a later stage.
Disadvantages of repayment-free mortgage form
- You are not entitled to mortgage interest deductions if the mortgage was taken out after Jan. 1, 2013.
- You often have a sizable debt outstanding at the end of the term.
- You often pay more interest than with a linear or annuity mortgage.
- Since 2013, you no longer get a mortgage interest deduction with this type of mortgage (unless you can use the transitional right).
(Bank) savings mortgages
A bank savings mortgage, or simply a savings mortgage, is a loan that consists of two parts. With one part (the loan), no direct repayments are made on the loan during the term.
The other part (the savings account) involves saving, in order to pay off (part of) the loan at the end of the term.
Unfortunately, if you would like to take out a mortgage with bank savings for the first time now, you can no longer choose this form of mortgage. It is only still possible by refinancing pre-existing savings mortgages.
Advantages (bank) savings mortgage
- During the term of this mortgage, you do not have to make any repayments
- At the end of the term, the mortgage is paid off (in part) through the linked savings account.
- No wealth tax needs to be paid on the accumulated assets with the (bank) savings mortgage.
Disadvantages (bank) savings mortgage
- You do have to pay regular monthly mortgage interest and premium for the linked savings account.
- You can no longer take out this type of mortgage if you take out a new mortgage
What is the best type of mortgage for you?
Each type of mortgage has its own advantages and disadvantages, and it depends entirely on your own situation and your future plans as to which suits you best.
For example, many first-time buyers choose an annuity mortgage because the monthly costs are lower in the beginning and you can better use this money for other things.
But if you want to know right away where you stand and pay off a fixed amount, then a linear mortgage may again be the way to go.
And finally, is it perhaps time to change mortgages? If so, you may be better off opting for a renewed savings mortgage. In other words, so many people, so many wishes, and there are many different options and situations. Handy to calculate what your maximum mortgage is before you start looking at your new dream home.
Nobel Mortgages as your personal advisor
At
Nobel Mortgages
we are happy to help you with quality financial advice and think with you on all issues. We always go the extra mile for our clients, truly analyzing all options and always thinking outside the box when necessary.
In this way, you are sure to achieve what others cannot. That is, we do everything we can to help you get the best mortgage that suits you and, of course, fits your circumstances and desires perfectly.
Do you also want an advisor who looks outside the box and really analyzes all the possibilities for you?
Then contact our experienced and enthusiastic team soon. We are available to you 24 hours a day with the utmost commitment and sincere attention. An e-mail is a snap to info@nobelhypotheken.nl or call or app to 06-54770122.