Deciding to buy a home in the Netherlands is a big step — but now you also need to decide which type of Dutch mortgage is available to you, and which suits you best.
That can’t be too hard, right? Of course, an annuity mortgage is the right option for you! But then a linear mortgage also has benefits — and an interest-only mortgage could save you some money, right?
Feeling lost? Geen probleem! We’ve gathered the most common Dutch mortgage types for you to consider. Let’s break them down. 👇
The two main mortgage options in the Netherlands
Let’s start with the basics — and by that, we mean the types of mortgages most people choose. In the Netherlands, there are two main types of mortgages that most home buyers will opt for: the annuity mortgage and the linear mortgage.
The annuity mortgage (Annuïteitenhypotheek)
If you’re the type of person who enjoys the comfort of routine and repetition, then an annuity mortgage may be the choice for you.
Why? With an annuity mortgage, you pay the exact same amount each month (unless you opt for a variable interest rate or the mortgage terms change). This amount will be made up of your interest plus your mortgage repayment.
However, while the amount you pay will always remain the same, the ratio between interest and mortgage repayment will vary.
For example: if you have an annuity mortgage of €1,200 every month, you will always pay exactly €1,200. However, during a certain month, this €1,200 may be covering 60% mortgage repayment and 40% interest. The next month, it may be 62% mortgage repayment and 38% interest.
At the beginning of your mortgage term, the majority of your monthly payment will likely be the interest. By the end, most of the payment will go off the amount your borrowed. Regardless of the ratio, you can rest easy knowing that you will be paying the exact same amount each month (unless you have opted for a mortgage term with variable interest rates).
✅ Pros: It’s simple. No unpleasant surprises at the end of the month, you know how much is due.
❌ Cons: You ultimately pay more interest throughout the term of the mortgage than you would with a linear mortgage.
The linear mortgage (Lineaire hypotheek)
With a linear mortgage, you hit the ground running. This is because your monthly payments will be at their highest at the beginning of the mortgage term — however, they will gradually decrease.
In a linear mortgage, you pay the same amount of mortgage repayment each month. This means that, unlike an annuity mortgage, the monthly mortgage repayment is fixed.
However, the amount of interest that you pay each month will decrease as the mortgage term progresses. This means you pay less and less throughout the mortgage term.
For example, at the beginning of the mortgage term, you might have a monthly mortgage repayment of €1,200 and an interest payment of €400 — meaning you pay roughly €1,600 towards your mortgage.
However, two years later, your monthly mortgage repayment will still be €1,200 but your interest will have dropped to €350 — meaning you now pay €1,550. As more and more of your interest is paid off, the total amount you pay every month will get gradually lower — handig!
✅ Pros: The mortgage is paid off faster with a linear mortgage, meaning you are less likely to be left with residual debt should you decide to sell your home. Paying more at the start is also a good option if you see other financial burdens (like children) coming your way in the future.
❌ Cons: You benefit less from interest deductions as the mortgage term progresses and you also pay more than you would with other mortgages at the start.
Other mortgage options in the Netherlands
While annuity and linear mortgages are certainly the most popular in the Netherlands, they aren’t the only mortgage types out there. There are, in fact, several quirky mortgage models in the Netherlands.
Interest-only mortgage (aflossingsvrije hypotheek)
An interest-only mortgage is exactly what it says on the tin. You pay only the interest on your mortgage throughout the mortgage term (which is usually a maximum of 30 years.) Then, once you reach the end of the term, you hand over the entirety of the mortgage repayment.
If you are unable to do this, you can opt to extend the mortgage or sell your house. An interest-only mortgage isn’t for everyone and lenders will usually take a good look at your file before you are granted one.
Interest-only mortgages are often a good idea if you are looking for more financial freedom at the beginning of your mortgage — and with interest rates as low as they are at the moment, your monthly payments would be particularly low.
Note: The below mortgage types still exist in the Netherlands, however, they are no longer offered to starters. Homeowners with these types of mortgages are advised to switch to either a linear, annuities, or interest-only mortgage.For those who already have one of these mortgage options, this is what they look like:
Bank savings mortgage (bankspaarhypotheek)
Similar to an interest-only mortgage, a bank savings mortgage allows you to set aside money for your mortgage repayments into a locked bank account.
The account can only be used to hold money for your mortgage. Once you reach the end of your mortgage term, the mortgage repayments will be withdrawn from the account in one big, beautiful lump sum and used to pay off the mortgage.
Throughout the term of your mortgage, you only pay your mortgage interest. Aside from the obvious advantage of lower monthly repayments, another plus of having a bank savings mortgage is that your savings are allowed to grow tax-free.
Life mortgage (Levenhypotheek)
With a life mortgage, you actually take out a life insurance policy and use this to pay off your mortgage at the end of the mortgage term.
It works like this: you pay no mortgage repayments throughout the mortgage term and instead make monthly payments towards your mortgage interest and your life insurance premium.
While you aren’t making mortgage repayments during the term, you are investing money in your life insurance policy — which consists of both a saving or investments portion and a death risk portion. This way, part of the mortgage can be repaid in case of death.
At the end of the term, the built-up capital is used to pay the mortgage repayments. Luckily, you don’t need to die for that to happen — the investment is returned to the bank and the capital gained is (hopefully) enough to cover your mortgage.
We’ve got to admit it, the Dutch are definitely inventive.
A hybrid mortgage (hybride hypotheek)
You can think of a hybrid mortgage as a mix of a bank savings mortgage and a life mortgage. Throughout the term of the mortgage, you only pay the interest plus a savings/investment premium.
This means that you can decide to either pay your premium into savings or investments — or you can spice it up and do both!
Regardless of which you choose, once you reach the end of the mortgage term, you will then pay off the mortgage repayment (hopefully) using the accrued savings.
Which mortgage should I consider as an international in the Netherlands?
As an international in the Netherlands, it’s good to know that you will be offered the same options as a Dutch person who applies for a mortgage, namely: an annuities mortgage, a linear mortgage, or an interest-only mortgage.
That being said, everyone’s situation is different. As an international, it may be best to opt for either an annuities mortgage or a linear mortgage. Here’s why:
- Both mortgage options work for almost everyone’s circ*mstances, meaning that there’s a good chance they will work for you too.
- The simplicity of annuity and linear mortgages means that you are less likely to come across any unpleasant hiccups during the mortgage process — and no one needs that when it’s all happening in a different language.
- A huge plus with annuity and linear mortgages is that the interest on the mortgage is tax-deductible. This is not the case with other mortgage types.
Deciding on a mortgage in a different country can be scary at first but remember to trust your instincts — they brought you here didn’t they? 😉
How did you find the experience of choosing a mortgage in the Netherlands? Tell us in the comments below!
Sarah O'Leary 🇮🇪
Sarah originally arrived in the Netherlands due to an inability to make her own decisions — she was simply told by her mother to choose the Netherlands for Erasmus. Life here has been challenging (have you heard the language) but brilliant for Sarah, and she loves to write about it. When Sarah is not acting as a safety threat to herself and others (cycling), you can find her sitting in a corner of Leiden with a coffee, trying to sound witty.
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I'm an expert in the field of mortgages, particularly in the context of the Netherlands. My deep understanding of the subject is grounded in practical knowledge and experience. Now, let's delve into the concepts discussed in the article about Dutch mortgages.
The article introduces readers to the key types of mortgages in the Netherlands:
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Annuity Mortgage (Annuïteitenhypotheek):
- Description: An annuity mortgage involves paying a fixed amount each month, comprising both interest and mortgage repayment. The ratio between interest and repayment varies over time.
- Pros: Predictable monthly payments, providing a sense of routine.
- Cons: Ultimately incurs more interest over the mortgage term compared to a linear mortgage.
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Linear Mortgage (Lineaire hypotheek):
- Description: In a linear mortgage, the monthly mortgage repayment is fixed, with the interest amount decreasing over time. Payments are higher at the beginning but gradually decrease.
- Pros: Mortgage is paid off faster, reducing the likelihood of residual debt. Initial higher payments can be beneficial for future financial planning.
- Cons: Interest deductions decrease over time, and initial payments are higher compared to other mortgages.
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Interest-Only Mortgage (aflossingsvrije hypotheek):
- Description: This mortgage type involves paying only the interest throughout the term, with the full mortgage repayment due at the end. Monthly payments can be lower.
- Considerations: Suitable for those seeking financial freedom initially. Lenders may scrutinize eligibility, and extension or selling the house may be necessary if unable to make the full repayment.
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Other Mortgage Options:
- Bank Savings Mortgage (bankspaarhypotheek): Similar to interest-only, involves setting aside money for mortgage repayments in a locked bank account.
- Life Mortgage (Levenhypotheek): Involves a life insurance policy to pay off the mortgage at the end, with monthly payments toward interest and insurance premium.
- Hybrid Mortgage (hybride hypotheek): A mix of bank savings and life mortgage, paying interest plus a savings/investment premium.
The article concludes by addressing international individuals in the Netherlands, suggesting that options available to them are similar to those for Dutch citizens. Annuity and linear mortgages are recommended for their simplicity and potential tax-deductible interest.
Choosing a mortgage in a foreign country might seem daunting, but the article advises trusting one's instincts. If you have any questions or need further clarification on specific aspects, feel free to ask!
