How does a linear mortgage work?
With a linear mortgage, you pay the exact same amount of repayment every month. As a result, the mortgage debt decreases in equal monthly portions. The interest also decreases monthly. At the end of the mortgage term, the mortgage is fully repaid. You are not obligated to choose the maximum term of thirty years; a shorter term is also allowed. The minimum term of a linear mortgage differs per mortgage lender.
Right to mortgage interest deduction with a linear mortgage
Since 2013, the rules have changed for qualifying for mortgage interest deduction. This means that if you take out a new mortgage today, you may only deduct the interest fiscally if you choose a mortgage form in which you repay the loan in monthly instalments within a maximum of 30 years. The available repayment options for this are an annuity mortgage or a linear mortgage. If you have a different mortgage form (such as an interest-only mortgage or a savings mortgage) from before 2013, you can use the transitional law, and mortgage interest deduction applies to that mortgage too. If you increase your old mortgage, for example, because you want to renovate, that increase will be financed with an annuity mortgage or linear mortgage if you want to use mortgage interest deduction.
Characteristics of a linear mortgage
- At the end of the term, the linear mortgage is repaid
- You repay the same amount every month during the term
Advantages of a linear mortgage
- Monthly fixed amount of repayment of your mortgage debt
- The mortgage debt decreases every month
- The mortgage interest you pay decreases during the term
- At the beginning of the term, you benefit from a lot of mortgage interest deduction
Disadvantages of a linear mortgage
- Less mortgage interest deduction at the end of the term due to lower mortgage debt
- The monthly payments are relatively high at the beginning compared to other mortgage forms
Which mortgage is right for you?
As a starting homebuyer, there are only two forms to choose from if you want to qualify for mortgage interest deduction: an annuity mortgage or a linear mortgage. Which one is best for you? If it is important for you to quickly reduce your mortgage debt and you are willing to accept a higher (net) monthly payment for that, then the linear mortgage is right for you. In addition, the linear mortgage has fewer ‘costs’ over the entire term than an annuity mortgage. The advantage of an annuity mortgage is that you mainly pay a lot of interest at the beginning, allowing you to make maximum use of mortgage interest deduction.
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