Mortgage rates have been in the news a lot lately because of the historically low position. Mortgage interest rates have never been as low in the last ten years as in the last quarter of 2017. Unfortunately, this only applies to an annuity or linear mortgage. The interest rate for a interest-only mortgage is rising significantly.
What is a interest-only mortgage?
With this form of mortgage you do not have to repay during the term. You only pay interest on the mortgage sum. Because you do not pay off, this interest amount will remain the same if you have secured it over the entire term. You do not accrue capital with this form of mortgage because you do not pay off the mortgage. With the sale of the house or with savings you have to pay off this mortgage. This form of mortgage carries a great risk, especially if you fall into an older age category.
Rising mortgage interest
The interest-only mortgage is still loved by the Dutch despite the high risk. More than 1.1 million Dutch people use this form of mortgage. The new capital requirements for banks have recently become known. It establishes that banks must maintain larger buffers on the balance sheet with the aim of preventing a new financial crisis. The Netherlands is hit hard by these new requirements. The mortgage system has a relatively high mortgage debt compared to the rest of Europe. Because such a large part of the Dutch uses a interest-only mortgage, this will not be easy to catch up.
The new standard will not take effect until 2022, but the banks will already take action for this. Through an extra store for interest-only mortgages, they want to discourage mortgages from closing this form. Redeeming this mortgage due to the rising interest rate differential can become interesting.