A mortgage comes in different shapes and sizes. The form of mortgage determines how you pay off the mortgage. Each form of mortgage has its own advantages and disadvantages. Thus, everyone can take out a suitable mortgage. Which mortgage form is best for you depends on your personal situation and wishes. At Alpina.nl we explain the different types of mortgage to you.
What types of mortgages are there?
The most common mortgage types are an annuity mortgage and a linear mortgage. This is because here you can take advantage of the mortgage interest deduction. There are also interest-only mortgages, savings mortgages, bank savings mortgages, life mortgages, hybrid mortgages, investment mortgages and credit mortgages.
With an annuity mortgage, you pay a fixed gross amount each month over the term of the mortgage. This amount consists of part interest and part repayment. So the monthly sum of interest and repayment remains the same throughout the term. At the beginning of the term, you will pay mainly a lot of interest, but later you will start to repay more. At the end of the term, you will have repaid the mortgage in full.
With a linear mortgage, you repay the same amount each month throughout the term. The interest you pay gets lower and lower, so your monthly payments also get lower. The gross amount decreases during the term, as more and more mortgage is repaid and you also have to pay less and less interest. At the end of the term, you will have paid off the mortgage in full.
An interest-only mortgage is a type of mortgage where you pay only interest until the end date of the mortgage. In other words, you do not repay the mortgage. Because you do not repay the mortgage during the term, you must repay the loan in full, in one lump sum, at the end date. However, you can choose to make repayments during the term, but you don't have to. Often the term of an interest-only mortgage is 30 years.
A savings mortgage is a type of mortgage where you save during the term to pay off your mortgage. You do not repay during the term, but pay off the entire amount at the end of the term in one go. On the amount you save, you receive a fee. This fee is equal to your mortgage interest rate.
With a bank savings deposit mortgage, you do not repay your mortgage during the term, but you save monthly to repay your mortgage. This money is placed in an escrow savings account. At the end of the term, the money in the savings account is released and you repay the entire amount in one go. In this respect, a bank savings mortgage is no different from a savings deposit mortgage. With a savings deposit mortgage, however, you take out the savings account with an insurer and with a bank savings mortgage with the bank.
With this form of mortgage, you do not repay but save money in an investment account. The money you save is invested for you in investments. So you build up capital to repay through investments. The idea is that you can pay off the mortgage in its entirety sooner. Of course, you do not know in advance what investments will yield. Therefore, you may accumulate less than your mortgage debt and have to pay up when you repay it.
A credit mortgage is a revolving credit where your house serves as collateral. Because your house is collateral, the lender is often willing to charge a lower interest rate than with a normal revolving loan. Therefore, this type of mortgage is often used as an alternative to a revolving credit rather than to finance a home.
This form of mortgage combines the advantages of a savings mortgage and an investment mortgage. We call this a hybrid mortgage. With a hybrid mortgage, you decide how big the investment part and how big the savings part is. You have no obligatory repayment during the term of the mortgage. The fixed monthly costs for this type of mortgage consist of interest and premium.
A life mortgage is actually an interest-only mortgage combined with life insurance. You don't repay anything during the term of the mortgage, but you pay mortgage interest and insurance premiums. On the premium you accrue, you receive a payment that allows you to pay off the mortgage amount in one lump sum at the end of the term.
Frequently asked questions about mortgage types
What type of mortgage is most common?
Since 2013, as a starter, you are only eligible for mortgage interest deductions if you take out an annuity mortgage or a linear mortgage. Therefore, these are also the most common mortgage types. Which mortgage form is best for you depends on your personal situation and wishes.
Which type of mortgage is the cheapest?
An annuity mortgage is the cheapest at the beginning of the term. This is because your monthly payments are lower at the beginning of the term than with a linear mortgage. Looking at the entire term, however, a linear mortgage is the cheapest. This is because with this type of mortgage you repay your mortgage more quickly and thus pay less and less mortgage interest. So in the long run, a linear mortgage is the cheapest form of mortgage.
With which mortgage types are you entitled to an interest deduction?
With an annuity mortgage and a linear mortgage, you are entitled to an interest deduction. Since 2013, these are the only mortgage types where you are entitled to interest deductions as a starter.
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