If you’re planning on buying a house in Luxembourg, you’ll usually require a 20-25% deposit and a mortgage for the outstanding sum. Learn about how home loans work for expats in Luxembourg.
Buying a house in Luxembourg can be an expensive business; prices per square meter can be between €5,000–€8,000, and you’ll often need a 20–25% deposit.
While 75% of people here own their own homes, around half of foreigners choose instead to rent in Luxembourg.
In this guide, you can learn about how to get a mortgage in Luxembourg, including current rates, the different types of home loans available, and assistance you can get from the government.
Mortgage rates in Luxembourg
You’ll usually take out a variable or fixed-rate mortgage in Luxembourg. Right now, homebuyers can benefit from very cheap rates.
The most recent data from the Central Bank of Luxembourg (released in January 2019) showed that the average variable interest rate on a residential mortgage was at 1.51% in November 2018, down by 0.10% year-on-year. In total, variable loans totaling €247m were granted in the year to November 2018.
In terms of fixed-rate mortgages, the average rate stood at 1.92% in November 2018. That’s up 0.11% in a year, with a total of €305,000,000 loaned to home buyers.
Before applying for a mortgage in Luxembourg
The good news is that there are no restrictions on foreigners owning property in Luxembourg; you shouldn’t find any obstacles in your way.
Your history of borrowing will play a major role in how much banks will lend you, and at what rate. With this in mind, obtain a credit report before applying for a mortgage, and think about how you can fix any problems in your credit history.
As part of this process, sort out a budget with all of your outgoings; you’ll be able to identify where you can save extra money to put towards your deposit.
Types of home loan in Luxembourg
There are several different types of home loans in Luxembourg. The right type of mortgage will depend on your specific circumstances. Mortgage terms generally run to a maximum of 25 years, and some deals are only available for shorter periods.
Adjustable-rate mortgage (ARMs)
An adjustable-rate mortgage – also known as a variable rate mortgage – is a deal where interest rates change periodically. When investigating these deals, you should pay specific attention to any caps on how high the mortgage rate can go.
Long-term adjustable rate mortgages can be good for internationals with a fixed or declining income from their employer. In contrast, short-term adjustable-rate mortgages are the better option if your foresee income increasing over a period of time.
A variable rate mortgage is more risky than a fixed-rate loan, as your payments can change from month-to-month.
Fixed-rate mortgages are a good choice for internationals moving to Luxembourg for five or more years.
With these loans, you’ll know exactly what your monthly repayment will be for a set period of time, regardless of what happens in the economy. While rates are higher on these loans, many buyers prefer the assurance of knowing their costs are fixed for five or 10 years.
A short-term fixed-rate mortgage allows you to accumulate equity faster than a long-term deal. However, you’ll need to pay more each month.
Home equity line of credit
In Luxembourg, getting a home equity line of credit allows you to draw funds as you need them and repay on your own terms.
To find the average amount of equity in your home, take the market value of your home and subtract outstanding mortgages. For example, if you have a €300,000 home and have €200,000 left to repay your equity is €100,000.
How to apply for a mortgage in Luxembourg
You can start the application 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.
Most banks request proof of your current income and outgoings. This is usually in the form of payslips, previous rent transfers, other mortgage mandates, and credit transfers. In some cases, as an alternative to a cash deposit, other investment assets might be used as additional collateral. A portfolio of securities could also 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, notarized 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. However, some banks make arrangements for quarterly, bi-annual, or annual payments instead. As a general rule, the monthly repayment for all of your combined mortgages should not be more than 35% of your net disposable income.
Mortgage calculators: how much can you borrow
Many banks offer mortgage calculators online that give you an estimate of how much you may be able to borrow.
Using the calculators below, type in the price of your house, average income, and how many years you’d like to pay a mortgage to get a general idea of your borrowing power.
- Principal: the portion of the house that you’ve taken out a mortgage on.
- Interest: the percentage the bank receives for lending you the money.
- Property tax: The local government tax, based on a percentage of your home’s assessed value.
- Mortgage insurance: This covers the bank against homebuyers who fail to make their mortgage payments. This is only applied when the down payment is less than 20% of the housing price.
- Hazard insurance: This mandatory insurance covers the home in case of events such as a fire or burglary.
Getting a mortgage and assistance in Luxembourg
If you’re finding it hard to get a mortgage, it may be possible to get 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. However, they might reject your application if you’re able to purchase the property using your own resources.