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.