Dutch mortgage tips: Adjusting your mortgage’s interest rate by changing your risk category
The rise in housing prices in the Netherlands combined with record-low interest rates can help homeowners see big monthly savings. Here are some helpful tips to lower mortgage interest rates in the Netherlands.
After a boom that lasted fifteen years, the Dutch housing market took a hit following the economic crisis of 2008, with housing prices falling nationally that year by 5.33 percent. But beginning in 2014, the market began to recover, and the first quarter of 2016 saw an increase in home sales of 24 percent and of home prices by 4 percent.
Home prices in major cities are rising more steeply than in other areas of the country, according to Statistics Netherlands (CBS). Amsterdam saw home prices increase by 14.7 percent during the second quarter of this year, whereas in Drenthe the houses rose by just over 2 percent during the same period. Expert mortgage broker Expat Mortgages shows you how to use this situation to your advantage and get lower mortgage payments monthly in the Netherlands.
How rising prices affect your risk category
In the Netherlands, the interest rate for a mortgage is based on the term of the fixed period and on the risk category of the loan. This risk category is based on the loan to value (LTV) ratio: the amount of the loan compared with the value of the property. The lower your LTV, the lower your interest rate.
The difference between the highest risk category (currently 102 percent LTV) and the lowest (depending on the bank, 65 percent LTV) can be up to 0.9 percent. Currently, the 10-year fixed rate in the highest risk category (102 percent LTV) is around 2.25 percent.
If the price of your house increases over time and/or your paying off your mortgage, your LTV may lower, which can quality you for a lower interest rate. Some lenders will lower this automatically, but others require you to make the request. To do so, you will have to obtain a recent copy of a valuation appraisal, or your WOZ declaration from the municipality WOZ.
Making additional payments to lower your risk category
Another way to lower your risk category and quality for a lower interest rate is by making extra payments to your loan. With an aflossingvrij (interest-only) mortgage, you pay no repayments on the actual loan; rather you pay monthly interest. Making lump-sum or extra payments on this type of mortgage may carry penalties. However, if your mortgage allows for extra payments, the benefits of a longer term lower interest rate can lead to real savings over time.
Fines and fees for adjusting your interest rate
Different mortgages come with different policies and rules for when you can make rate adjustments. In some cases, there will be a fine or you will have to wait for the fixed term of your mortgage to expire. Check with your lender or mortgage broker to be sure you understand the rules of your specific mortgage.
Interest mediation (rentemiddeling)
Another alternative is interest mediation (rentemiddeling). If your remaining fixation period is long and your current rate is high, this might be an alternative (often without a penalty as well). Please check with your bank, your broker or with Expat Mortgages.
Depending on your mortgage, you may also be liable to pay a fine should you pay off a lump sum of your mortgage in order to lower your risk category. In some cases, the lower interest rate it will afford you will be worth the expense.
Expat Mortgages / Expatica
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