Mortgage interest rates
The mortgage interest rate which is offered in the mortgage quotation consists of a standard rate and sometimes discounts and surcharges. This rate is fixed during the fixed rate period indicated, unless there is a variable rate.
Quotation and daily interestThe interest rates in the mortgage quotation are usually definitively established interest rates that will be applicable after the start of the mortgage. If the interest rate were to decrease after the quotation, then this no longer affects the established interest rate. This is also called the quotation interest rate. Is the actual interest rate on the implementation date (i.e. the date that the mortgage contract is signed by the notary) lower than in the quotation? Some parties may give you the opportunity to take this lower interest rate. This principle is called the daily interest rate. More often than not, an offer with the daily interest rate is slightly more expensive (0.2%) than the offer based on the quotation interest rate. Some lenders may have a dipping interest rate. A dipping rate means that the mortgage will be offered at the lowest prevailing rate in the period between the issue of the quotation and the signing of the mortgage contract.
Interest and the annual percentage rate of charge (APR)The interest that has to be paid annually is calculated based on the nominal interest rate (also known as interest rate). For calculating the actual monthly payment, the lender applies the (nominal) interest rate and divides the interest payable by twelve months. Furthermore, the offer states the annual percentage rate of charge (APR). Most lenders will include this in the concept offer (interest rate offer). This annual cost percentage is initially intended to provide more clarity on the effect of all one-off and recurring costs of your mortgage added to your (nominal) interest rate. The method by which this APR is calculated is prescribed by European directives. The Authority for the Financial Markets (AFM) states the following: “The APR represents the total cost of the mortgage credit for the consumer. It encompasses the costs that can reasonably be expected to be known to the lender and that are necessary for receiving the credit. This for example includes the cost for opening a mandatory checking account and a life insurance policy for the amount required by the lender. The cost of advice should be included as well if the consumer is unable to acquire the credit without being advised. If the exact cost cannot yet be determined, a reasonable average of the costs in the relevant markets may be used instead. The lender should include all costs that are usually incurred, including interest, provisions, and any taxes.” In practice, the annual percentage rate appears to be overshooting its mark. It causes more questions and confusion instead of improving clarity. It is more practical to consider one-off or recurring costs separately and compare them where necessary. We will, for example, help you determine which lender or insurer fits your situation best. And you might have selected a fitting civil law notary by yourself.
Interest rate discounts and surcharges
The mortgage interest rate that is eventually charged may sometimes include interest rate discounts or surcharges.
Base rate and rate surcharges
Homes with a purchase price up to €265,000 are often financed with an interest rate in the NHG rate. NHG stands for Nationale Hypotheek Garantie (National Mortgage Guarantee). Thanks to this mortgage guarantee, the Stichting Waarborgfonds Eigen Woningen (Homeownership Guarantee Fund) guarantees the repayment of the mortgage to the lender, were the mortgagee unable to finance the mortgage. As a result, the lender virtually runs no risk, and therefore does not have to charge the risk in the mortgage rate. The NHG rate forms the base rent, in which the loan poses little or no risk to the lender.
Is there a possibility of a mortgage without National Mortgage Guarantee, then usually a surcharge applies on top of the NHG rate based on the relationship between the mortgage loan and the value of the home (also called Loan to Value , shortened LtV). The higher the LtV (meaning: the higher the mortgage loan compared to the market value), the greater the risk that the property will not yield an amount to repay the complete mortgage loan. The lender charges this risk on the basis of a surcharge on the interest rate. During the duration of the mortgage, the LtV may change. For example, by partly repaying the mortgage or due to a increase in the value of the property. It is therefore very important that you pay close attention (in advance) to the interest margins, the potential risks and the conditions attached to the chosen mortgage. Depending on the conditions, you’ll be eligible (in the future) for a lower surcharge. We will explain how this works in the following paragraph.
Interest rate adjustments during the mortgage period
With a favourable LtV, different lenders have different interest rate adjustments during the term of your mortgage. Some lenders automatically adjust the interest rate when a lower risk category is reached. Others will only adjust the interest rate if you submit a request yourself. In that case, you will also be required to provide a recent valuation (appraisal or WOZ [Real Estate Valuation] report).
Finally, there are also lenders who will not adjust the interest rate during the fixed rate period. Are you planning on having a fixed rate for a longer period? Or do you expect to be paying back relatively more? Always keep this in mind!
Interest rate discount
It is possible that the mortgage interest rate includes a discount. An interest rate discount is usually related to certain conditions. Examples include the requirement to take out a bank account to which the salary is paid or having to take out a life insurance policy. Please keep in mind that the lender can determine the amount of discount for every new fixed interest period. The discount can also lapse if the discount conditions are no longer met.