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The linear mortgage

What is a linear mortgage?

A linear mortgage is a type of mortgage that is repaid during the term of the mortgage. This is done on the basis of fixed, periodic repayments (often monthly). The repayment amount is calculated by dividing the mortgage amount by the number of periodic repayments. The entire mortgage is repaid at the end of the term.

The linear mortgage used to be very popular, but because of the mortgage interest deduction , the linear mortgage has not been much chosen in recent decades. This was because with the linear mortgage, repayments are made quickly during the term. As a result, the mortgage interest deduction also decreases rapidly over time. The arrival of the additional loan scheme reinforced this effect even further.

This arrangement means that homeowners must contribute any equity on the new home when selling their own home. Equity is the difference between the selling price of the home and the amount of the (deductible) mortgage. Equity arises from an increase in the value of the home and / or repayments on the mortgage amount. With a linear mortgage, the homeowner increases the equity of the home more quickly, which means that the tax deductions in the event of a move are also less great.

However, since 2013, the mortgage interest deduction for new home buyers has become a lot stricter. Since then, they are obliged to opt for a full annuity or linear mortgage to qualify for mortgage interest deduction. As a result, the linear mortgage has become more popular again and is actually back with a vengeance.

Compare current mortgage rates of the linear mortgage

Advantages of a linear mortgage:

  • over the entire term, less interest is paid in absolute terms than with other repayment forms;
  • the relatively quick repayment from the start of the loan ensures rapid capital growth;
  • due to the relatively quick repayment, the risk of a residual debt decreases relatively quickly;
  • due to the periodic repayment, the annual expenses decrease during the term. This is particularly attractive for people who, for example, want to work less in the future, or who want to retire early. It is also interesting for people with a high-risk profession where there is a risk that the income could be lower in the future due to circumstances;
  • since 2013, for starters (and for increases), the linear mortgage and the annuity mortgage have been the only types of mortgage allowed to qualify for mortgage interest relief.

Disadvantages of a linear mortgage:

  • the monthly costs are high in the first years;
  • due to the relatively high costs in the initial phase, a lower mortgage can in many cases be obtained than with other types of repayment;
  • the level of the tax deductibility decreases during the term, which is detrimental, in particular when income rises;
  • there is a limited inflation advantage: thanks to inflation, the relative value of the mortgage debt decreases over time. If there is a lot of repayment at the beginning of the term of the mortgage, less is benefited from this relative depreciation.

Mandatory linear mortgage:

The lender sometimes requires the linear mortgage due to the quick repayment in the initial phase. This happens, for example, with obsolete collateral. In this way, the risk for the bank decreases faster than with other forms.

Overview of the current mortgage interest rates of the linear mortgage
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