The lifetime mortgage
What is a life mortgage? A life mortgage is a type of mortgage that consists of a combination of a mortgage loan and a mixed life insurance policy (endowment insurance). With the life mortgage, the mortgage loan is not repaid during the term. Instead, the borrower pays a monthly premium for the mixed life insurance policy. This premium consists of 2 components:
There are a large number of types of mixed life insurance policies, the difference being mainly reflected in the way in which the savings or investment portion of the premium is put away. If the compensation received on the savings component is linked to the mortgage interest to be paid, we speak of a savings mortgage (other form).
- a savings or investment component. This is used to save or invest in order to be able to repay (part of) the mortgage at the end of the term.
- a death risk part. This means that (part of) the mortgage can be repaid in the event of a pre-death.
With a life mortgage, the tax authorities offer the option of classifying the life insurance as an owner-occupied home endowment insurance (KEW). For a KEW, no wealth tax in box 3 is due on the capital accrued in the endowment insurance during the term. This allows tax-favorable capital to be built up during the term of the mortgage.
The life mortgage is only available to existing mortgage holders who bought their home before 1 January 2013 and have already taken out a life mortgage on that home. They can still transfer, convert or take this existing life mortgage with them to a next home without losing their mortgage interest deduction . The Home Ownership Equity Insurance (KEW) is also only available to existing homeowners who purchased their home before 1 January 2013 and who already have an Home Ownership Capital Insurance (KEW) with their mortgage or who have taken out this by April 1, 2013 at the latest. For starting homebuyers from 1 January 2013, the life mortgage is no longer an interesting option, because if they choose a life mortgage, they are not entitled to mortgage interest relief. To get a mortgage interest deduction, startups must opt for an annuity mortgage or a linear mortgage .
Compare current life mortgage rates
Benefits of a life mortgage:
- the gross and net charges remain the same during the term (at the same interest rate);
- the fiscal interest deduction will be maintained during the term (provided that it is concluded before 2013);
- tax-free capital can be built up through the home endowment insurance policy;
- in fact there is an interest-only loan and a pledged policy. The policy can usually be continued unchanged after repayment of the mortgage. This is useful if you are moving;
- there are lenders who accept the insurance of a large number of insurers as security for the pledge. This allows you to choose the lender with the most favorable interest rates combined with the most economical traditional endowment insurance.
Cons life mortgage:
As indicated above, various tax options are possible with a life mortgage. This can entail tax benefits, but also all kinds of restrictions, which reduce flexibility during the term of the mortgage. Especially in case of relocations and / or major changes in the personal situation, this Financial can have very negative consequences. In view of the complicated nature of the tax matters surrounding mixed insurance, it may be wise to obtain financial advice from an expert adviser.
- often there are quite a few (hidden) costs incorporated in an insurance policy. The insurers charge these costs, especially in the first years. As a result, a relatively small part of the premium is available as a pure savings / investment premium for the first few years. In general, it can be said that buying off the policy during the first 10 years is particularly disadvantageous;
- there is often no guaranteed payment, which may leave you with a residual debt;
- From 2013, the life mortgage is virtually no longer interesting for starting homebuyers because the mortgage interest on this mortgage is then not deductible.
Overview of the current mortgage rates of the life mortgage
More about the KEW on the site of the tax authorities