A mortgage is one of the largest and most important personal investments people make. If you plan on living in Luxembourg and buying a house, here are some tips.
Getting a mortgage in Luxembourg is an important step when buying a house. As you dive in, know that prices remain high in the Luxembourg housing market, and house deposits tend to be around 20 to 25%. While government assistance is available for some home buyers, the average property price per square metre in Luxembourg is around €4,500.
Half of foreigners rent in Luxembourg, but over 75% of people living in Luxembourg own their homes. Property value does not increase fast, and demand to live in Luxembourg rarely is high enough to create a hot housing market. Regardless, there are a range of loans and mortgage offers for homebuyers in Luxembourg.
Loan payments typically include:
1. Principal: The portion of the house that is financed.
2. Interest: The percentage the bank receives for lending you the money.
3. Property Tax: The local government tax fee, based on a percentage of your home’s assessed value.
4. Mortgage Insurance: Insurance coverage to protect the bank against home purchasers who do not make their mortgage payments. This is only applied when the down payment is less than 20% of the housing price.
5. Hazard Insurance: Required coverage for the homeowner that protects a home investment in case of fire, burglary, etc. by funding the rebuilding or replacement of theft or damage
Mortgages in Luxembourg: which is best for you?
Before applying for house mortgages, be sure to obtain a credit report with the value of credit scores, and think about ways to fix any problems that may exist in your credit history. Develop a household budget that will factor in how much of a house payment you can comfortably afford.
There are various types of home mortgages in Luxembourg, and each one meets specific financial and timeline needs for the borrower. Mortgage loans generally run a time-length of about 25 years maximum, sometimes less.
Adjustable rate mortgage (ARMs)
In an adjustable rate mortgage the interest rates will change periodically, hence the term “adjustable rate”. Before jumping in, make sure you research the limit on how high this sort of mortgage can adjust. Try to find out if there is a cap, and compare banks and offers. Long-term adjustable rate mortgages are a plus for internationals with a fixed or declining income with their employer. In contrast, short-term adjustable rate mortgages are the better option if your foresee income increasing over a period of time.
Fixed-rate mortgages are a good choice for long-term internationals. Anyone moving to Luxembourg who plans on living in a home for more than five years should consider a fixed rate mortgage when looking to buy. Ideally the hunt is to find the lowest monthly payment possible, so compare offers from banks. A short-term fixed rate mortgage will allow you to collect your equity faster than anything long term. However short-term fixed rates will produce higher payments than long-term fixed rates. The best approach is to project your future income if possible over the next few years, and decide from there.
Home equity line of credit
In Luxembourg, just like most countries, getting a home equity line of credit allows you to draw funds as you need them and repay on your own terms. There are rate mortgages that vary from bank to bank. To find out the average amount of equity in your home, take the market value of your home and subtract any outstanding mortgages. So if you have a €300,000 home and have €200,000 left to repay on your mortgage, your equity would equal €100,000.
Mortgages in Luxembourg: loan application
Begin the mortgage process by scheduling a visit with a loan officer. Identify the property you want financed and include your different financing scenarios, as well as the price per square meter and any estimate of additional fees. Any preliminary sales agreements on the property, or renovation estimates should be brought as well.
Most banks will request information to be transferred to verify your income and costs. Employment salary via official pay slips, previous rent transfers, other mortgage mandates and credit transfers are some examples. In some cases, as an alternative to 20% or more of a cash deposit, other investment assets might be used as additional collateral. A portfolio of securities could double as a guarantee to a bank.
After applying you will meet a financing officer from the bank who will help you arrange the collateral, notarised deed and other provisions for the loan. After the paperwork is signed and the terms are agreed to, the time to repay the loan begins.
Generally loans are repaid on a monthly basis, although some banks can make arrangements for quarterly, bi-yearly or annually. As a universal rule, the monthly repayment for all of your combined mortgages should not go over 35% of your net disposable income.
Getting a mortgage and assistance in Luxembourg
There are no restrictions on foreign ownership of property and homes in Luxembourg. Your mortgage entitlement largely depends on your personal circumstances, so it’s a good idea to start by contacting the Housing Assistance Department to see if you’re eligible.
Many banks offer mortgage calculators online that will give you an estimate of what’s offered personally for your situation. Type in the price of your house, average income, and how many years you’d like to pay a mortgage, and a usual monthly payment will be the result. Online application forms are also available next to the calculators. Here are a few examples:
If you’re finding it hard to get a mortgage, it may be possible to get help in the form of a state guarantee. A loan provided as part of the government guarantee has a different application criteria depending on whether you’re a permanent resident in Luxembourg or not. You can find more information about the state guarantee and application forms in French and German on the government website.
It can also be possible to get a grant from the state of between €250 and €9,700 when buying a new-build or existing home. The amount you can get depends on your income, and you might be turned down if you’re able to purchase the property using your own resources.