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Residual debt financing

When selling a house, the intention is that the remaining mortgage will be paid off from the proceeds. Unfortunately, that does not always work. Sometimes the selling price is lower than the outstanding mortgage debt. Then there is a residual debt after the sale. To be able to make such a sale, the bank must give permission. After all, after the sale, there is no longer any mortgage security for the remaining debt. As a result, the bank runs more risk of not getting its money back.

Repay residual debt

If the bank has approved the sale, this does not mean that the remaining debt does not have to be repaid. It remains an obligation to simply repay this debt. This requires residual debt financing. If you buy another house, it may be possible to finance the residual debt in the new mortgage. The Mortgage Financing Code of Conduct and the standards of the National Mortgage Guarantee (NHG) provide scope for this, and some banks are participating in this. However, not all lenders are willing to co-finance a residual debt in a mortgage.

Residual consumer debt financing

If co-financing in a mortgage is not successful, another loan form is required to repay the residual debt. This is possible, for example, with a personal loan , but also with a revolving credit . Which loan form is more suitable depends on the situation.

Tax deduction on loan interest

The interest paid on a financed residual debt is tax deductible under a temporary arrangement. This deductibility applies for 15 years, for residual debts that arose after October 28, 2012 and before January 1, 2018. There is no obligation to repay the debt for the deduction. In theory it is therefore possible to take out an interest-only credit on which only interest is paid. In that case, after the 15-year deduction, the debt is still fully outstanding, while the tax support expires. It is more sensible to actually repay the loan for the residual debt in those 15 years. Banks will usually require this as well.

How much interest for residual debt?

Interest is of course charged on a loan for a residual debt. How much interest do you pay in total? That depends on a number of factors:
  • Amount of the residual debt
  • Amount of the loan interest
  • Duration of the loan
These three factors determine the monthly cost of the loan. To find out how much interest you pay in total for a loan, first multiply the monthly payment by the number of months in the term. You deduct the financed residual debt from that. The amount that remains is what you pay in total in interest. You will see: a shorter term means a higher monthly payment, but a lower total cost of your residual debt.

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