Of all the things to organise, mortgages are one of the most important. With so many different providers and so many traps to fall into, they’re also one of the most complicated. Choose the wrong one and you can end up paying thousands more than you need to.

To help ease some of that stress, the following is a quick guide to the financial aspects of home buying in Belgium.

How much can you afford?

Before you start looking for a property, you’ll need an idea of how much you can borrow. Banks in Belgium have a reputation for being conservative but they are restricted by law to the amounts they can lend.

As a rule, most banks will lend up to 100% of the value of a property. The amount you can borrow is governed by your net monthly income. Banks will limit the amount they lend to ensure that your monthly repayments do not exceed 40-50% of your net monthly income.  For lower earners, this figure is reduced to around 30-35%.

Other factors such as employment status (employee or independent), profession, age and family status will also influence a bank’s willingness to lend to you.

Choosing the right type of mortgage

When a bank has agreed to lend to you, you’ll need to decide on the type of mortgage. Banks will be happy to advise you, but remember that they’re limited to selling their own products.

When comparing mortgages, it’s important to look beyond the interest rate. Bank fees, lock-in clauses and repayment penalties can all prove costly, so the lowest rate isn’t always the best deal. To find the best products, it’s essential to compare different offers.

Mortgages in Belgium are available as either ‘repayment’ or ‘bullet’ loans.

Repayment Mortgage

These are the most common and require borrowers to repay interest and part of the outstanding capital each month.  In the early years borrowers will be paying more interest and less capital however in later years the proportion of capital will increase.
Bullet Mortgages

Also known as an ‘interest-only’ mortgage, a bullet loan means you only pay interest during the term of the loan. The capital will need to be repaid at the end.

For example, a ‘1+1+1’ mortgage will have an interest rate which can be adjusted once a year, a ‘5+5+5’ every 5 years and a ‘10+5+5’ will provide a fixed rate for the first 10 years, after which the rate can be adjusted every five years.

The structure of these loans means they are not suitable for everybody. Although you will benefit from lower monthly payments, you need to be sure you will have enough money to repay the capital at the end of the term. Suitable sources of repayment might be a pension lump sum or the proceeds of a long-term savings scheme.

Interest rates on these mortgages can be either fixed, variable or semi-variable:

Fixed Rate

These are straightforward and easy to understand: your interest rate cannot be adjusted throughout the term of the loan. You choose the term (a maximum of 30 years, but more commonly 15 or 20 years) and the bank will quote you a rate. You’ll know exactly how much you need to pay each month, which is ideal if you want or need this kind of certainty.

Variable and Semi-Variable Rates

Rates on these mortgages fluctuate to reflect changing underlying interest rates. The frequency and amount by which the rates change are governed by the type of product chosen. In Belgium, variable rate mortgages are commonly referred to by the frequency with which their rates can change.

For example, a ‘1+1+1’ mortgage will have an interest rate which can be adjusted once a year, a ‘5+5+5’ every 5 years and a ‘10+5+5’ will provide a fixed rate for the first 10 years, after which the rate can be adjusted every five years.

If choosing a variable rate mortgage, you should make sure it is ‘collared and capped’. This means that although the rate can fluctuate, the amount it can go up or down is limited. For example, a variable rate loan might stipulate that the interest rate may not increase or decrease by more than 5 % during the term.

Variable rates are attractive if you are looking for flexibility and a low interest rate. However, you should be aware of the features of each product and ensure you that you can cope with any interest rate changes.

Don’t overlook the additional costs

When buying property in Belgium, you’ll need to add around 15% to the cost of your property to cover the various legal and administrative fees (notary, registration fees, mortgage fees etc). Some lenders will make allowance for these costs as part of your borrowing, but otherwise you will need to have funds available.

 …or the insurance

It’s wise to ensure that you have sufficient insurance when you become a home owner. Life assurance (Solde Restant Dû/Schuldsaldoverzekering) will pay off your mortgage in the event of your death, whilst household insurance will protect your home against accidental damage.

Banks will want to sell you their own insurance policies, but these can be expensive. Discounted mortgage rates are often offered on condition that you buy this insurance. Don’t be afraid to ask for details of all costs involved and be prepared to shop around to compare prices at different institutions.

Conclusions

Your mortgage is an important part of your overall financial planning. However, amidst the pressures and stress that often accompany buying a home too many borrowers fail to secure a suitable deal. You can relieve some of this stress by having a clear understanding of the mortgage and insurance options available to you and by shopping around to find the most cost-effective providers.

This feature was prepared by Fulcra International Financial Planning in Brussels. Fulcra’s Mortgage Advisory Service helps people secure attractive mortgage deals by searching the market on their behalf.

For further information on any of the above, please contact info@fulcra-international.com or telephone +32 (0)2 639 4560.