Mortgage types compared

In the Netherlands, there are three common mortgage types for financing owner-occupied property: the annuity mortgage, the linear mortgage and the interest-only mortgage. Each type has a different pattern of monthly payments and repayment. The choice has implications for your monthly costs, your tax benefit and the remaining debt at the end of the term.

Annuity mortgage

With an annuity mortgage, you pay a fixed gross amount each month: the annuity. This amount consists of interest and repayment. At the start, the largest portion is interest and a small portion is repayment. As you repay more, the interest component decreases and the repayment component increases. The gross monthly payment stays constant during the fixed interest period, but the net payment gradually rises because you accumulate less interest deduction. After 30 years, the mortgage is fully repaid.

Linear mortgage

With a linear mortgage, you repay a fixed amount each month. Interest is calculated on the remaining debt, which decreases month by month. As a result, monthly payments are higher at the start than with an annuity mortgage, but they decrease over the term. The total interest costs over the full term are lower with a linear mortgage than with an annuity mortgage. After 30 years, the debt is also fully repaid.

Interest-only mortgage

With an interest-only mortgage, you only pay interest. The debt does not decrease. At the end of the term, typically 30 years, the full mortgage amount is still outstanding. It must then be repaid, transferred or extended. Monthly payments are low, but the risk is that the debt remains unchanged throughout. Mortgage interest deduction does not apply to this type for mortgages taken out after 2013.

Which type suits you?

The choice of mortgage type depends on multiple factors: income, age, future plans and a preference for certainty or lower payments now. For first-time buyers wanting to use mortgage interest deduction and NHG, lenders generally only offer annuity or linear options. People with an existing interest-only mortgage sometimes face the question of how to gradually pay it down. An advisor will set out the options based on the specific situation.

Combinations

In practice, mortgage types are sometimes combined. Part annuity and part interest-only was common in the past. For new mortgages, however, the possibilities for interest deduction are limited to annuity and linear types. An advisor will explain which combinations make sense from a tax and practical perspective.

Disclaimer

This is general information, not personal mortgage advice. Tax rules and possibilities per mortgage type may change. A Wft-certified advisor will assess your situation and propose the most appropriate structure.