Mortgage and state pension

For many people, the home is the largest asset and the mortgage the largest liability. Around retirement, income typically changes significantly: employment income stops and is replaced by the state pension (AOW) and any supplementary pension. This transition affects the affordability of housing costs.

What is AOW?

The General Old Age Pensions Act (AOW) is the government's basic pension scheme. Everyone who lives or works in the Netherlands accrues AOW entitlement. The benefit amount depends on the number of years you have lived in the Netherlands and whether you live alone or have a partner. AOW alone is in many cases lower than previous employment income.

Income reduction at retirement

At retirement, income falls for many people. AOW plus supplementary pension typically amounts to less than previous gross salary. When a mortgage is taken out, lenders assess whether payments remain affordable after retirement. This is known as the pension test. If you already have a mortgage running beyond your retirement age, it is advisable to check in good time how the payments compare to your income at that stage.

Interest-only mortgage and retirement

An interest-only mortgage has low monthly payments as long as the interest can be paid. But at the end of the term, the loan must be repaid in full or extended. If that moment coincides with retirement, it can be challenging: income is lower and lenders impose new conditions on extension. This is a common concern that advisors flag for clients with older mortgage arrangements.

What can you arrange before retirement?

There are various ways to keep housing costs manageable after retirement. Making extra repayments reduces the debt and thereby the monthly payment. Switching to a different mortgage type or lender can sometimes be advantageous. Adjusting the mortgage structure, for example by converting part to an annuity repayment basis, can also help. Which option suits best depends on the personal situation and is something an advisor will map out.

Tax and mortgage interest deduction

Mortgage interest deduction only applies to annuity and linear mortgages taken out after 2013. When you retire, your taxable income decreases, which reduces the benefit of interest deduction. This is an additional reason to have your mortgage situation reviewed before retirement.

Disclaimer

This is general information, not personal pension or mortgage advice. Rules around AOW, the pension test and interest deduction may change. A Wft-certified advisor will assess your specific situation based on current standards.