How does an investment mortgage work?
Nowadays you can pay your mortgage in many different ways, including through a so-called investment mortgage or securities mortgage. Would you like to know what such a mortgage entails, how it works and what you need to consider? Here are clear answers to all the important questions so that you can make the best choice for your situation from a financial standpoint.
An investment mortgage is a form of mortgage where you save money to pay off the mortgage on your home by investing money. In this case, the invested money is in a separate account linked to your mortgage. Another name for this is also called the Home Investment Account or BEW.
How does an investment mortgage work?
With a securities mortgage, you don't pay anything off per month, but instead invest a fixed amount that allows you to pay your outstanding mortgage debt at the end of the term in one lump sum. In most cases, that investment is made via a fixed amount per month.
The basic operation of an investment mortgage is thus clear, but there are a number of other things you should keep in mind when considering this form of mortgage. The account where you deposit the saved amount (the investment account) is always blocked. This means that you cannot simply withdraw money from it.
While an investment mortgage is a handy tool to immediately pay off a large mortgage debt at the end of your mortgage term, it is no guarantee that this will happen.
After all, there may be residual debt at the end of the term. For example, if your investments have not produced sufficient returns during the entire period. In this case, the value of the account is less than the amount to be repaid.
Can you take out an investment mortgage now?
It is important to note that today it is no longer possible to take out an investment mortgage. Did you already have such a mortgage running, before January 1, 2013? If so, it will simply continue.
Thereby, it is good to know that mortgage interest rates are still low today, so you can indeed still save on your monthly costs. In this sense, an investment mortgage only offers opportunities for people who already have a mortgage and want to pay it off in the future.
The main advantages and disadvantages of an investment mortgage
An investment mortgage offers many opportunities for those who want more long-term financial security in paying off their mortgage, but there are also some sticking points.
Here is a clear overview of the main advantages and disadvantages of an investment mortgage:
Advantages:
1. Great flexibility
With an investment mortgage, you choose entirely how much money you save together each month to pay off your mortgage at the end of the term.
2. A high return on positive stock price
When the stock market is doing well, thanks to an investment mortgage, you also enjoy much higher returns.
3. Relatively low monthly cost
The cost of an investment mortgage is always relatively low, regardless of the amount you want to set aside.
4. Choice
Finally, as an investor, you can choose entirely which fund(s) your monthly contribution will be invested in. This is the deciding factor for many people considering this type of mortgage.
Disadvantages:
1. A higher interest rate
Keep in mind that the interest rate on an investment mortgage is usually a bit higher than on a regular mortgage. Often there is a difference of 0.2%, at least with certain financial institutions.
2. Lower returns with lower stock price
As mentioned, the return on your investment mortgage depends largely on the stock price. Is the latter lower? If so, then your return will also be lower.
3. Greater financial risk
The risk of financial loss is relatively high with an investment mortgage, since you, the policyholder, deposit a large amount of money into your investment or securities account at one time.
4. Potentially rising monthly costs
Saving the mortgage amount together with an investment mortgage must be reported in the tax return under Box 3. This means that a capital gains tax may have to be paid on that amount each year, resulting in a higher monthly cost.