Whoever takes out a mortgage, in many cases takes out a loan for a period of 30 years. This is the economic term of the mortgage and is independent of the chosen fixed-interest period. At the end date, the mortgage must be repaid in full to the lender.
In the Netherlands, 1.1 million homeowners have a mortgage that is not or only partially redeemed. Homeowners with a non-repayable mortgage are often insufficiently aware that they too must repay the mortgage in full after 30 years.
Risks redemption free mortgage after 30 years
Of course, you can choose to sell the house after 30 years and pay off the mortgage. However, if you want to continue living in your own home, you will have to refinance the residual debt (mortgage extension). This involves a number of risks:
The residual debt may not be able to be fully financed
- In 2018, only 100% of the house value may be financed. Politicians are calling for this to be reduced to 90%.
- After 30 years, the mortgage goes from box 1 to box 3. The mortgage will then be tested more strictly on the basis of income.
- If the mortgage expires after your 56th birthday, your pension income will partly determine what you can borrow. Banks take into account a (lower) income after retirement as from 10 years before the retirement date.
Monthly costs increase in the financing of residual debt
- After 30 years, the mortgage interest deduction lapses. This means that your net monthly costs will increase.
- If you choose to continue your mortgage redemption free, you often pay a risk surcharge. Also, you may not be able to take the full redemption-free mortgage with you.
- If you choose to start paying off after 30 years, this will obviously result in higher monthly costs.
Over-50s underestimate risk of redemption free mortgage
Elderly people often have a large excess value and therefore do not expect any problems in extending the redemption-free mortgage. However, the new mortgage is also tested on income. Due to a lower income (after retirement) or stricter income standards, it is not always possible to extend the redemption-free mortgage (despite the excess value).
The supervisory authority AFM has therefore determined that the new redemption-free mortgage may, subject to conditions, be tested against the actual mortgage burden. This instead of the higher notional burden in the case of annuity repayments. This offers greater opportunities for the elderly to extend the redemption-free mortgage. However, they remain dependent on their bank whether it adopts the directive from the AFM. For them, too, the redemption-free mortgage can be a risk.
- You can redeem part of the mortgage with your savings each year. This is interesting in view of the low interest rate on savings at the moment. Most banks allow you to redeem up to 10 to 20% of the mortgage with no penalty.
- You can convert the mortgage to annuity or linear redemption. This is also penalty-free if you continue the mortgage for the remaining fixed-interest period with the same bank. However, administration costs will be charged for this.
- You can transfer the redemption free mortgage to annuity, linear redemption or redemption free with another lender. You can then reconstitute the mortgage, including the lowest interest rate in the market. Despite the penalty interest rate, this can be the most advantageous at the bottom of the line.
For further information, see this Radar broadcast: