5 reasons why you should – and shouldn’t – remortgage your Dutch property
With record-low mortgage interest rates, how can you make a decision whether remortgaging would benefit you? [Contributed by Expat Mortgages]
The Dutch property market has been in flux in recent years, from a downfall during the country’s economic crisis to strong recovery as the market is boosted by historically low interest rates and increased consumer confidence. As a result, homeowners in the Netherlands are finally in a better position to consider remortgaging as an option to bring down their mortgage payments. Expat Mortgages explains when a homeowner should consider the benefits of remortgaging their property, and when it’s best they stay put.
Understanding what is remortgaging
In the Netherlands, homeowners can opt to remortgage an existing property, which involves taking out another mortgage with a new lender on a property they already own. A homeowner can remortgage to pay off the existing mortgage on their home.
Some homeowners may be discouraged by the potentially huge (tax deductible) penalties. If your mortgage is tied to an initial deal, you could be liable to pay an early repayment charge – which can be as high as 10 to 15 percent of your outstanding loan – as well as a small exit fee (or admin or deeds release fee). On the other end, you have to also pay a fee to set up a new loan and also valuation costs and notary costs to register the new mortgage – in total, around about EUR 4,500 of (tax deductible) costs. But this doesn’t mean you shouldn’t consider remortgaging: once you do the calculations, you can sometimes still find that the savings outweigh the penalty and costs.
Against the backdrop of historically low interest rates throughout Europe, today remortgaging options are offering particularly attractive savings on monthly mortgage repayments.
For many homeowners, their mortgage payments are their biggest financial commitment and yet many homeowners don’t consider the possibility of shopping around to get a better deal. In some cases, they could save thousands each year as well as reduce their overall mortgage debt burden.
Some reasons below outline some situations where remortgaging could be a beneficial option to save you money on your mortgage repayments.
1. Your mortgage deal is about to end
Your best mortgage rate – a fixed, tracker or discount mortgage rate – is typically only set for a short time, often two to five years. When that period comes to an end, you mortgage lender will typically put you on a five-year fixed rate. But you can always choose another option available from your current lender. By remortgaging, a homeowner can also start a new fixed-period rate or discount rate that is lower than the rate offered by their old lender.
Using the base rate of the Dutch National Mortgage Guarantee rate as an example, a homeowner could secure a mortgage rate as low as 1.70 percent for a one-year fixed period, 1.75 percent for a five-year fixed or even below 2 percent (1.98 percent) for a 10-year fixed period.
If your mortgage deal is about to expire, it is recommended to start researching several months before your mortgage period ends to ensure you have time to set up a new deal.
2. You want a better rate or are worried rates will go up
With the Euribor base borrowing rates below 0.5 percent, banks have continued to lower their mortgage interest rates in recent years, putting more homeowners in a position where they can significantly benefit from remortgaging. Independent mortgage broker Expat Mortgages, for example, dropped their interest rates for a 10-year or more fixed mortgage plan by 0.17 percent in 2016, which now start as low as 1.98 percent, while short-term fixed mortgage plans rates start at 1.75 percent interest. Significant reductions in your mortgage rate can lower your monthly payments up to a few hundred euros per month in some cases, which can outweigh even the penalty costs.
Today’s rates are also some of the lowest on record since the effects of the global economic crisis took hold. With scarce room for rates to decrease further, homeowners may benefit from locking in longer-term fixed periods knowing that mortgage rates can only – eventually – go up. Although experts’ predictions that rates would increase have been proven wrong these past few years, when talking about a 20-year fixed period, homeowners can be more certain that rates will rise from today’s historic lows.
3. The value of your home has risen significantly
If the value of your property has risen since you took out your mortgage, this could lower your loan-to-value (LTV) ratio, where your mortgage debt becomes a smaller percentage of your property’s value. This typically means you can qualify for lower mortgage rates. Expat Mortgages, for example, reports discounts from 0.2 percent to 0.9 percent are possible for those who qualify for a lower LTV bracket.
To give a basis for rough calculations, the difference between the highest risk category (currently 102 percent LTV) and one bracket below (depending on the bank, 65 percent LTV) can be up to 0.9 percent. At the moment, the 10-year fixed rate in the highest risk category (102 percent LTV) is around 2.65 percent.
As the current Dutch housing market is showing strong signs of recovery, changed LTV ratios are increasingly become a possibility for homeowners in the Netherlands. Although Dutch property prices fell more than 20 percent in the five years following the country’s economic crisis, strong growth throughout 2015 and the first quarter of 2016 have pushed property prices up to just 9 percent less than the peaks recorded in 2008 before the market fell.
Real estate experts predicted a slow-down in 2016, but the market continues to bound forward; the Dutch estate agent’s association NVM recorded an average rise of 5.5 percent in the first quarter of 2016 compared to the previous year, while other areas performed well above average, such as Amsterdam, Leiden, Utrecht and Groningen. In Amsterdam, for example, house prices soared 20 percent in the first quarter (year-on-year), in addition to a 9.7 percent increase recorded over 2015. Consumers are particularly paying top price for homes in old city centres – often above the asking price.
4. You want to reduce your mortgage or change the conditions
As a homeowner, you may be locked into a payment deal set out in your initial mortgage deal, for example, your current lender won’t let you make significant overpayments, you want to change from an interest-only to repayment mortgage, you want to change the amortisation period or you want more flexibility.
To start with, you shouldn’t need to remortgage to switch the type of your mortgage – for example, from interest-only to capital repayment – and in such cases, you should talk with your lender first.
However, you may have had a significant pay rise or inherited money and want to pay back your loan quicker. Some lenders don’t allow this without penalty, or will only allow small overpayments. But by reducing your loan size you could potentially get a cheaper interest rate. In this case, remortgaging for a lower loan amount can be beneficial, depending on the penalty costs and interest rates you are offered.
Remortgaging is also a possibility for those who want to change the repayment period of their mortgage. In some cases, this might be to reduce the mortgage term to be mortgage-free sooner or to extend a mortgage period to lessen the burden of monthly payments, although your mortgage will cost more as it takes longer to pay off the loan.
There are also lenders who offer greater flexibility in their payment plans, such as allowing ‘payment holidays’ if you want to study, change jobs or travel, or combining current and savings accounts with your mortgage. However, flexible features come at a cost, typically in the form of slightly higher interest rates, so it’s not worth switching to such a plan unless you actually require such features.
5. You want to increase your loan amount for a new investment
It is possible to remortgage for a greater loan amount using your house as the capital asset. You might want to increase your loan amount for renovating your house, buying a new property or investing in another type of asset.
Remortgaging allows you to borrow more, and with a potentially lower rate, so you have greater liquidity with your finances, although it’s important to weigh the cost compared to other forms of borrowing.
Reasons not to remortgage
Not all situations can benefit from remortgaging, particularly if you have already secured a great rate. In every case, it’s important to speak to a financial advisor and do the calculations to see if there are any potential savings.
However, you might not consider remortgaging if any of the following situations applies to you:
- Your mortgage debt is low: a lower interest rate won’t accrue as much savings with a lower loan value – say EUR 50,000 – if you have high fees, and in some cases, lenders won’t accept small loan values, for example, less than EUR 25,000. You might be able to find a new loan that has no fees, but calculations should be done first to see the overall savings.
- Your penalty fee is high: any savings you could gain on a lower interest rate can be completely wiped out by a large repayment fee. Instead, you might be better off asking your current lender to switch you to another of their deals.
- Your financial situation has changed: There are stricter mortgage rules since the crisis and you may not qualify if you cannot prove sufficient income, for example, if you have a partner who became unemployed or if your financial record shows any credit issues.
- You’re in negative equity or your property value is lower: if the value of your property has fallen lower than your mortgage debt (negative equity), you will typically not be accepted for remortgaging. If your property price has fallen and increased your loan-to-value (LTV) ratio, you will typically be put in a higher risk bracket, which increases your interest rate. Thus, you should wait until your property price rises.
- You don’t have enough equity: Banks are reluctant to lend more than 80–90 percent of a property’s value, or if so, you will unlikely find a great deal. Particularly if your original mortgage was accepted with a small or no deposit, you may not have enough equity on your property to remortgage.
- You’re considering selling your property in the near future: a penalty (plus costs) might not be earned back within the remaining period of the mortgage
If you do think that remortgaging could provide potential benefits to your situation, it’s advised you start researching your options at least three months before. For a free consultation, contact Expat Mortgages, who can guide you through the process and help you calculate whether you could save considerable amounts on your mortgage repayments.
Contributed by Henk Jansen of Expat Mortgages
Henk Jansen is a partner with Expat Mortgages B.V., and is a SEH Acknowledged Mortgage Consultant with more than 20 years of experience. He can be reached at (020) 717 39 08 or (06) 511 903 67. Expat Mortgages B.V. is located at Roerstraat 133, Amsterdam. E-mail email@example.com, or view their website at www.expat-mortgages.nl.
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