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The annuity mortgage

What is an annuity mortgage?

An annuity mortgage is a type of mortgage in which the mortgage loan is repaid during the term of the mortgage. This is done on the basis of periodic repayments (often monthly). The uniqueness of the annuity mortgage is that the periodic gross amount that is paid for interest and repayment remains the same during the term of the mortgage (the interest period of the mortgage). This periodic amount is called the annuity. At the beginning of the mortgage term, most of the annuity consists of mortgage interest. The higher the amount is repaid, the less interest has to be paid and thus more room is created for paying off the debt.

For 2 tax reasons, the annuity mortgage was not much chosen for several decades. The first tax reason is that the annuity mortgage is repaid during the term of the mortgage. As a result, the tax deduction option on the mortgage interest to be paid continues to decrease over time. The second tax reason has to do with the so-called additional loan scheme that has existed since 2004. This arrangement means that homeowners must take any equity capital with them to 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 is caused by an increase in the value of the home and / or a reduction in the mortgage amount. By making repayments during the term, the homeowner increases the equity of the home himself, which means that the tax deductions in the event of a move are less great.

However, this has changed since 2013. Since that year, the mortgage interest deduction for new home buyers has become considerably stricter. Since then, they are obliged to opt for a full annuity or linear mortgage. They are only eligible for mortgage interest relief if they opt for a full annuity or linear mortgage. And existing homeowners who want to increase their mortgage for a renovation or the purchase of a more expensive home must also choose a full annuity or linear mortgage to qualify for mortgage interest relief for the increase. Since this change, the linear mortgage, together with the annuity mortgage, has become more popular again and is actually back with a vengeance.

Compare current mortgage interest rates of the annuity mortgage

Benefits of an annuity mortgage:

  • the gross monthly amount is fixed during the fixed-rate period;
  • the debt is fully repaid at the end of the term (security);
  • low net initial costs compared to the linear mortgage: little is repaid in the beginning;
  • for buyers or mortgage boosters after 2013, the annuity mortgage, together with the linear mortgage, is the only permitted mortgage form to qualify for mortgage interest deduction.

Disadvantages of an annuity mortgage:

  • because of the diminishing tax deduction, the net charge increases over the years;
  • the level of the tax deductibility decreases during the term, which is detrimental, in particular when income rises;
  • hardly any repayments are made in the initial phase;
  • because of the repayments, equity is created in the home. This limits the tax deduction in the event of a move.
Overview of the current mortgage rates of the annuity mortgage
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