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Maximum benefit from mortgage relief and low interest charges. It sounds good! Nevertheless, interest-only mortgages are not only positive features. Do not buy back for example …
In the past, interest only mortgage was popular. Many homeowners have chosen this type of mortgage because of the relatively low monthly payments. The name says it all, during the term you do not dissolve. This can become a problem if the term of the mortgage has expired. Check in time what is it for you so as not to discover too late that you belong to problematic cases.
The interest only mortgage was particularly popular because nothing is repaid and the debt therefore remains high. Interest on this debt is paid where the mortgage interest deduction applies. The benefit of the deduction is greater than if you pay periodically and the debt becomes smaller.
What's the problem with a mortgage only interest?
Unfortunately, you do not get money borrowed for a mortgage without a refund. At the end of the term, payment must be made. For example, with money that has been saved together during this time. To finance the remaining debt, you can take out a new mortgage. There are some problems, including:
- Lower Income
Income may have decreased, for example because income around retirement is decreasing. Borrowing the same amount of mortgage can be a problem in this case. - Higher Mortgage Rates
At the present time, mortgage interest rates are low. There is no guarantee that it will remain so. If the mortgage interest rate goes up, you can logically borrow less. This makes it difficult to refinance your mortgage debt. - Decline in the value of the house
Your house has lost its value. If the house is forced to sell, it means less. The bank runs more risk and limits your possible maximum mortgage. - Other Banking Terms
The bank may impose different conditions. For example, a short term by which you must repay the remaining debt in a shorter period
Disappearance of the mortgage interest deduction
The government abolished for an indefinite period in 2001. Since this year, 30 is the maximum. Starting in 2031, the first owners will face higher interest charges. In addition to the term, the mortgage interest deduction itself decreases. This year, the maximum deduction is 49.5%. The deduction is reduced in stages from 0.50% per year to 38% in 2041.
Relay, Transfer or Relocation
It is best to tackle as soon as possible any problems that may arise. an interest only mortgage. For example, starting early to save and repay. Crossing the mortgage can also be part of the solution. Another great alternative is to move to a cheaper home. Under certain conditions, you can take the interest-only mortgage with you, as long as the total mortgage does not exceed 50% of the value of the new home.
From time to time, the government and consumer organizations warn landlords with interest-only mortgages. Maybe you have one too. Do you want to know if this can become a problem for you? Fill out the form below. We are happy to help you further.
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