2. Is the linear mortgage a less expensive option?
It is frequently suggested that a linear mortgage is less expensive than an annuity mortgage. It is difficult to judge if this is true or not. One characteristic of a linear mortgage is that your initial principal payment is larger, resulting in you paying less interest on your loan. Paying less interest also means that your interest tax deduction is lower.
For a mortgage of € 200,000 with an interest rate of 2.5% over a period of 30 years, you will pay a gross total of € 9,000 less with a linear principal payment scheme compared to an annuity principal payment scheme.
Therefore, you initially have to pay less with an annuity principal payment scheme. The question lies in what you do with this money. Is it in a savings account with a low interest rate? Or do you spend it? Repaying can then be more advantageous, for example by agreeing to a linear scheme. Are you investing this money in something that generates value (investment, study, etc.)? Then annuity principal payments can be more financially advantageous for you.
3. When should you choose a linear mortgage?
You choose a linear mortgage if you are prepared to initially pay higher monthly costs, which decrease on a monthly basis. However, most starters choose the lower monthly costs, which the annuity mortgage offers in the principal years. Approximately 5% of the newly finalised mortgages are linear. A number of reasons to choose for a linear mortgage are:
- The certainty that you repay more in the initial years. Thus the risk of negative home equity reduces and you are more flexible to move house in the short term. For example, if you have plans to move abroad or if you want to move because your family is expanding.
- You know that your income will decrease in the future, for example due to the fact that you are going to work less hours or will retire.
- Due to the fact that you are paying off your loan faster, most lenders will also be more inclined to give you a discount on your interest rate.
- You spend money like water and want to force yourself to spend your money wisely.