Today more and more people are buying a house. A wise decision, because renting is no longer possible for more and more people. Due to the changed legislation regarding social rental housing, you are no longer eligible for social rental housing from a certain income. In those cases you end up with a private landlord who usually rents out properties in the same neighborhoods but may ask much higher rental prices. A tenant who pays more than 1000 euros a month for his rental home is therefore no exception.
If you buy a house of your own, your monthly payments will usually be a lot lower. This is mainly due to the fact that the government pays you back the interest that you pay for your mortgage – in part. A mortgage is a loan that you almost always need when you start buying a house. Most people don’t just have the amount to buy a new home in their bank account.
What does a mortgage entail
A mortgage is a special loan in which the home acts as collateral in case the homeowner can no longer meet his monthly expenses. The property is then sold to return the borrowed money to the bank. You take out a mortgage, whereby you usually pay a monthly amount in repayment of the mortgage, and an amount in interest on the outstanding mortgage amount.
There are also mortgage types where you do not pay off your mortgage every month, but only pay interest on the outstanding amount. You call this the interest-only mortgage. Until 2015, it was still permitted to take the entire mortgage as an interest-only mortgage, but since 2015, only 50 percent of the total mortgage may be interest-only.
The share of interest in your mortgage
All in all, the interest determines the amount of mortgage charges. This is because the monthly repayment is for the most part made up of interest. At the start of your mortgage, you determined how much you pay in interest with the lender. A certain percentage of interest has been chosen which must be paid during a certain period.
That interest is calculated on the basis of the state of the interest at the time of taking out a mortgage. If the interest rate is low at the time of taking out, many people will want to take out a mortgage at that time to buy a house. If the interest rate makes taking out a mortgage affordable, it makes sense that many people opt for an expensive rental house.
How does a lender calculate the interest rate?
Most lenders have a good view of the development of interest over the years. They are also aware of the development of interest over the next 5, 10, 15, 20 or even 30 years. You can partly control how much you pay in interest for a mortgage. A low interest rate will keep your mortgage costs low. However, you must take into account that a low-interest mortgage lender will offer options that are for a short-term fixed-rate period. In that case, you can take out an attractive, affordable mortgage for a fixed-rate period of 5 years.
If you take out a mortgage for a longer period, the interest will be adjusted accordingly. In that case you pay more interest for your mortgage. The extent to which this is an attractive choice for you personally will become apparent over the years. The interest rate can continue to fall, which means that you will be paying too much for years, but the interest rate may also suddenly rise sharply due to all kinds of international developments, making your initially higher interest rate suddenly very attractive.
Switch to another mortgage because of the interest
If the fixed-rate period for your mortgage ends, it is your right to take out another mortgage. You close your mortgage as it were. A lower interest rate; In that case, mortgage refinancing is very attractive. Bear in mind that the lender will probably opt for a short fixed-rate period of one to five years. Then you have to see again that you can refinance your mortgage for such an attractive interest rate.
You should also bear in mind that the amount of interest that you pay for your mortgage determines the tax refund that you receive from the tax authorities monthly or annually. If you opt for a lower mortgage interest, you will automatically also receive a lower tax refund, which means that your net monthly costs will increase while you pay less interest. You can also choose to use the amount that you have left at the end of each month to repay part of your mortgage extra.
A fine with your mortgage
If you choose to exchange mortgages at a lower interest rate in the meantime, keep in mind that the lender will not just agree to this. You commit a breach of contract if you want to refinance a mortgage in the middle of your fixed-rate period. Many lenders will then impose a fine on you. This will then largely compensate for the missed interest. You must therefore carefully consider whether it is worth changing a mortgage during a fixed-rate period.
Sometimes the lenders of your new mortgage give a compensation for the fine that you have to pay to the old lender. It is certainly worthwhile to inquire about. If you want to save money every month because of a lower interest rate, you must be able to rely on the fact that you will actually benefit, and not end up with a higher debt.
The question is to what extent a level of interest rates makes mortgage refinancing more attractive. After all, you want lower net costs. Repayment and interest refund play a role in this. If you take out a mortgage for the first time, then it is of course a nice boost when you can do this for a low monthly amount. However, keep in mind that over the years this monthly amount may just become higher due to interest rate developments.