Repayment-free mortgage calculation

In most cases, interest-only mortgages have a 30-year term. Once that term expires, the mortgage on your home must be paid off all at once. Depending on your personal situation, several options exist:

1. Pay back extra mortgage

This approach is especially interesting if you have built up your own equity and are using it to pay off outstanding mortgage debt.

2. Getting a new mortgage

It is also possible to take out a new mortgage, which you then use to pay off your old one.

3. Moving to another home

Chances are your personal or family situation will change during the term of the mortgage. For example, your children may live alone and you may want to buy a smaller house. In that case, you sell your current home and use the proceeds to pay off your mortgage debt.

Here are the main benefits if you do pay off an interest-only mortgage:

1. A lower interest rate

Paying off an interest-only mortgage anyway reduces mortgage debt. The advantage of a lower mortgage relative to the home value is that you can reduce any interest rate premium. After all, in that case the bank runs less risk on the amount borrowed.

2. Additional deductions

If the deductible expenses on a mortgage are less than the added sum of the Owner-Occupied Housing Credit, you may be entitled to an additional deduction as a policyholder. This is true, for example, if you have a lower home equity debt or none at all.

3. Lower monthly costs

Of course, when you pay off your interest-free mortgage, you no longer have to pay interest on the amount paid. Since the amount still to be repaid only continues to decrease, you gradually pay a lot less interest as well. This in turn translates into much lower monthly expenses over the term of the mortgage.

The benefits of paying off an interest-only mortgage do go a long way. Still, it pays to also examine any drawbacks and stumbling blocks before you tie the knot:

1. Take into account the top-up rule

As mentioned, it is possible to pay off your interest-only mortgage with the money from the sale of your current home. For example, if you move house. In that case, however, it is important to take into account the possibility of a so-called additional loan scheme.

This rule means that the interest on the mortgage for your new home is deductible at most on the entire investment in the new home, minus the sale proceeds. However, this does not apply if, for example, you rent a home instead of buying one for a period of 3 years.

2. Your financial buffer gets lower

When you pay off an outstanding mortgage partially with your equity, you naturally have fewer financial resources at your disposal. Therefore, it is important to first determine what financial buffer you will need for unforeseen expenses, even before you effectively repay.

The important thing here is that you should never pay off your mortgage with money that you will need in the short term. If you first pay off your mortgage and then need that money for things other than your own home, the interest on that amount is not deductible. This is because the amount you withdraw is considered a consumer loan in that situation.