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You are here: Home Housing Renting Which mortgage do I need?

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14/08/2003Which mortgage do I need?

 
The pros and cons of each type of mortgage is discussed in plain language to help you decipher the mystery that is mortgages. Aflossingvrij: Interest only. It is unlikely that you will get this kind of mortgage to cover the full cost of buying but you may well use it in combination with one of the other types of mortgage. Annuiteit: Repayment. All interest payable over the term of the mortgage is added to the capital and then the total divided into equal monthly payments. In the first year 'repayments' are about 98 percent interest and 2 percent capital. These ratios change from year to year so that in your final year it is 98 percent capital and 2 percent interest. Fine if you intend to sell up and go within (say) 5 years. But, if you stay longer, your tax position gets worse since you will be (a) paying more tax as your salary increases and (b) getting less relief on a reducing amount of interest. Leven (or spaar): Roughly equivalent to a UK endowment mortgage. To be avoided at all costs. Firstly "growth" in the savings plan is the same as the mortgage interest. Thus - with low interest rates – the "premium" to the savings plan must be higher to meet the repayment goal at the end of the term. Secondly these plans have high "up front" costs so, if you sell up and leave in (say) less than 10 years you end up with an endowment policy that is not worth even the premiums you have paid. Vermogensgroeiplan: Capital Growth Plan. Actually this is just one of many different trade name for this type of plan. Similar to an endowment policy but using a so-called "unit linked" savings plan, premiums tend to be considerably lower than a "levensplan" but our comments about cost still apply. Beleggers: Investment. You pay interest only on the mortgage whilst paying into a savings plan linked directly to the investment funds of the bank. For expatriates this is the best type of mortgage by far since there are virtually no costs attached to the savings plan. When you sell, so long as the sale proceeds are enough to cover the mortgage, the savings – together with all growth – reverts to you with no cost and no tax to pay. Meerwaarde: Added value. (This has various trade names depending on which lender you are talking to). This is only available in connection with the beleggershypotheek. If you have capital, you may invest this in the funds made available by the lender and borrow an additional 160 percent of the amount as additional mortgage. This enables you either to purchase a more expensive property than your income would normally allow or to use the investment to reduce your monthly outlay or both. Combinatie: Combination. As the name implies a combination of any of the above but usually a portion of the mortgage as aflossingvrij and the rest one of the other types. What restricts the amount you can borrow? The first restriction is your gross income. (Joint income if you are married or cohabiting). The following table is a rough guide to the mortgage you could reasonably expect to raise against your current (joint) income.
Income
Mortgage
EUR 35,000
EUR 170,000
EUR 45,000
EUR 226,000
EUR 55,000
EUR 282,000
EUR 65,000
EUR 337,000
EUR 75,000
EUR 393,000
EUR 85,000
EUR 448,000
EUR 95,000
EUR 504,000
EUR 105,000
EUR 559,000
The second restriction is the Foreclosure value (executiewaarde) of the property. This is usually about 90 percent of the open market value. This is the value that the mortgage company could reasonably expect to realise if they are required to foreclose on your mortgage and put your home up for auction. The maximum mortgage you will be able to raise would be 125 percent of this value – 130 percent in rare instances. Note – after applying both of the above rules the mortgage company will advance the lower of the two values. The third restriction is your ability to pay. All loans and other credit facilities (eg credit card limits) are registered at a central credit register (BKR) in Tiel. The mortgage company before making an offer will check this register and the terms of such loans and credit facilities to see whether these terms allow you to take on additional debt. If not either your mortgage will be refused or you will be required to redeem (part of) the existing loan or credit facility as a condition of the mortgage. The final restriction is if you have a bad debt record, which is also recorded at the central register (BKR) in Tiel. If you have such a loan and/or if you are aware of a previous bad debt – however small – it is important that you reveal these to your mortgage advisor when first applying for a mortgage. So long as your circumstances are fully explainable – in most instances – this restriction can be overcome. This column is the second in a series of articles about mortgages by Strategies. It is for informative purposes only, is general in nature, and is not intended to be a substitute for competent legal and professional advice. About Strategies Subject: Dutch mortgages


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