Mortgage advice for starters
If you plan to buy a house, don't fall on the first hurdle of arranging your mortgage. This guide answer FAQs on mortgages, interest rates and calculating how much you can borrow.
When buying your first house, you are faced with plenty of new challenges. Thankfully, mortgages for your first house have become relatively more transparent in recent years, although it is still important to familiarise yourself with the options. First-time homebuyers should prepare themselves and know what to expect during the financing process prior to buying a house.
Expat mortgage advisor Viisi answers some frequently asked questions by first-time homebuyers regarding mortgages:
- Which types of principal payment options can I choose from?
- Should I negotiate the best mortgage interest rate?
- Do I have to pay any fees for advice?
- How much can I borrow based on my income?
- How much can I borrow based on the value of my house?
In the Netherlands, in order to deduct your mortgage interest from your income taxes, it is determined by law that you must repay your loan within a maximum timeframe of 30 years. This principal payment must be done at the very least via an annuity. In practice this entails that there are two types of principal payment you can choose from: annuity and linear.
Some clients prefer an annuity principal payment because of the lower monthly costs in the first years, although your mortgage provider can advise on which principal payment suits you best.
Prior to Dutch mortgage reforms in 2013, it was worthwhile to negotiate the best mortgage interest rate with a lender when buying a new house. If you did not do this, you might have paid too much. Since 2013 you no longer need to negotiate your rate and you are also better protected as a consumer. Every lender is obligated to advertise their mortgage interest rate, this is something you cannot and may not negotiate.
However, some lenders provide a discount, for example, if you open a checking account (with mandatory salary deposit). The prices are non-negotiable as well but it is useful to see if you can get a better deal by bundling together a few different products.
Every mortgage advisor or lender in the Netherlands is obligated to separate advice and broker fees from the product costs of a mortgage (interest and principal payment). There are typically several fees associated with arranging a mortgage, which can include a house valuation, broker's or advisor's fees, home insurance, administration fees and notary fees.
Today there are companies dedicated to helping you make the best choice for your mortgage. Some companies, for example, collaborate with a number of lenders, gather a range of mortgage rates to compare and guide you through the process to choosing the best solution. To get an idea of Dutch mortgage rates, you can see the current mortgage interest rates in the Netherlands from a range of lenders.
The Code of Conduct for Mortgage Loans (Gedragscode Hypothecaire Financieringen) describes how much you may borrow. In practice this means that your maximum borrowing capacity will only differ slightly with various lenders. You can make an indicative calculation of your borrowing capacity and the associated mortgage costs on some mortgage websites. Usually it is not advisable to look for the limit of your maximum borrowing capacity.
Your borrowing capacity is based on your assessed income (toetsinkomen). Your assessed income usually consists of all fixed income components:
- Gross monthly salary
- Vacation allowance
- 13th month
- End-of-year bonus.
Potential bonuses are usually not included in your assessed income. Depending on the type of bonus there are sometimes possibilities, but these depend on the lender.
Take into account that the following circumstances can reduce your maximum borrowing capacity:
- (Student) loans
- Lease hold
- Partner alimony
- Bank overdraft/credit cards/loans – if registered at the BKR (Dutch Credit Rating Agency).
In addition to a maximum borrowing capacity, there is also a maximum borrowing limit based on the value of your house. In 2016, you cannot borrow more than 102 percent of the so-called market value of your house. This percentage will be decreased annually until 2018, when you will no longer be allowed to borrow more than the market value (100 pecent) of your house:
Maximum borrowing limit compared to the market value of the house
The market value of the house is usually determined to be the lowest of the purchase price and the market value by an appraisal report. Sometimes a recent appraisal under the Valuation of Immovable Property Act (WOZ beschikking) is also sufficient, as long as the value according to the Valuation of Immovable Property Act (WOZ value) is higher than the amount you wish to borrow. Upon new construction, the market value is usually equal to the so-called investment costs: the sum of all costs including the land and possible additional work.
Tips for choosing a mortgage provider
When considering the conditions of your mortgage, there are some important aspects to consider:
- Do you expect to pay your mortgage faster in future and would you then be entitled to a lower mortgage rate?
- How long do you plan to live in the house and could you potentially remortgage for a new home?
- If going abroad in future is a possibility, can you rent the property temporarily?
- Do you play with the idea of becoming an entrepreneur and would you still get a mortgage with your lender?
Because conditions can change and your mortgage should be as adapted to you as possible, you should talk about any future or potential plans with your financial advisor.
In addition to comparing the different rates of mortgage providers, it is also important to choose an advisor which best suits you. For example, certain mortgages providers offer specialised expat services such as English-language information and advice on foreign housing laws.
Viisi – Expat Mortgages / Expatica
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