In the Netherlands, when contracting a mortgage (if you buy a house for instance) you will be presented with a choice: do you want a linear or annuity mortgage?
Only these two types of mortgages are eligible for the interest tax deduction (renteaftrek) in the Netherlands since 2013.
Know that it’s your tax advisor who will make the mortgage simulations and present you with both options, not your real-estate agent (makelaar).
I will (try to!) precisely explain what both options are, so you can be prepared to choose the best for you!
Mortgage language
Because this is a complex topic, let’s first dive into the world of mortgages.
Keep in mind that a mortgage is made of two things:
- The loan (debt): the money you need to buy the house.
- The interest: the money the bank is asking for in exchange.
A mortgage also has a lifetime: it’s called a term or a maturity date. For instance, if you buy a house, the term or maturity of your mortgage will be 30 years. You will repay your mortgage to the bank within 30 years throughout monthly repayments that include the loan and interest. The mortgage is repaid once the maturity date is reached.
If I buy a house of €300,000 at 2% interest with a term of 30 years, my mortgage will be made of a €300,000 loan for the house, plus €99,189.03 interest (money the bank is making by lending the loan).
The annuities mortgage (annuïteiten hypotheek)
With an annuity mortgage, your monthly repayment (interest + loan) stays the same throughout the entire term.
It means that the amount of money you will pay back to the bank every month will be the same over the lifetime of your mortgage.
If I agree to a mortgage of €300,000 loan for a house with a 2% interest rate over 30 years, I will pay around €1,100 every month for 30 years.
Even if you don’t see it in your monthly repayments, among the total amount paid, the part of interest and loan you are paying back evolves.
- At the beginning, you will mainly pay a lot of interest.
- As the mortgage progresses, more money will go towards the repayment of the loan.
The linear mortgage (lineaire hypotheek)
With a linear mortgage, your monthly payments are not the same. You pay off the same amount of loan repayment, but not of the interest.
The interest you pay is the highest at the beginning of the mortgage. This means your monthly repayment is pretty high at the beginning at the mortgage. Step by step, the amount of interest you pay is getting lower and your monthly expenses will decrease.
Overall, you will pay less interest compared to an annuities mortgage. The downside of this mortgage is that you pay a high amount in the beginning of the mortgage.
If I agree to a mortgage of €300,000 loan for a house with a 2% interest rate over 30 years with a linear mortgage, I will pay around €1,600 per month at the beginning and the repayment amount will constantly decrease the closer I get to the end of the mortgage maturity.
Which mortgage type is the best?
It’s hard to say, it mainly depends on you and if you have the ressources to start with high monthly repayments or not. As yourself some questions:
- Do I want to have the same monthly repayments for 30 years?
- Do I need a lot money at the beginning for renovations in the house?
- …
| Annuities | Linear | |
| Advantages | – Monthly repayments are the same all the way through the mortgage duration. – Lower monthly repayments than a linear mortgage at the beginning. – The high amount of interest is tax-deductible, so the net monthly cost is low at the beginning of the mortgage. | – The amount of loan you repay the same through the mortgage. – Your repayment decreases every month which also reduces the interest, so the costs will gradually decrease. – You pay less interest compared to an annuities mortgage. |
| Disadvantages | – You pay more interest compared to a linear mortgage. | – The interest is very high at the beginning of the mortgage, so the costs are high. |
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