The risk of a low mortgage interest – Everything about finance.
August 31, 2019
Do you currently have a mortgage with a mortgage interest of 2% and a term of ten years? Remember that you do run a risk. After all, after the ten years the mortgage has probably not been fully repaid. You will then have to renew your mortgage at a possibly considerably higher interest rate. The monthly charges will then be considerably higher. Read on to discover how you can prevent possible problems with, for example, surcharges and residual debt.
The risk of a low mortgage interest
You can prevent that you might be confronted with considerably higher monthly payments later. When taking out a mortgage, you can opt for a mortgage with a longer term. The interest rate can fall even further. You will not benefit from this decrease. However, given the current low interest rates, it is not unlikely that interest rates will rise again in the future. With a long-term mortgage, you can prevent housing costs from rising significantly in the future.
Lots of savings
Do you have a lot of savings? Then you could consider paying off your mortgage early. Depending on your bank, it is possible to repay the mortgage partially or sometimes completely without penalty. So it seems very attractive to do that. It is good to be aware of the advantages and disadvantages of early repayment of your mortgage.
Benefits early repayment
The mortgage interest that you pay is higher than the extremely low savings interest. It is therefore advantageous to partially repay the mortgage interest early. You then pay less interest. Using the savings to pay off your mortgage interest will cause your assets to fall. You may therefore have to pay less wealth tax in box 3. In addition, the monthly repayment reduces your monthly expenses.
Early repayment has even more advantages. Your own house becomes a larger part of yourself. With a sale you then have no or at least a smaller residual debt. If you take out a new mortgage with a higher interest rate, the housing costs will increase less than if you had not repaid part of the mortgage early. Does your income decrease when you retire? Then you have lower housing costs.
Relieve disadvantages earlier
The early repayment of a mortgage also has disadvantages. For example, you can no longer dispose of the savings that you used to repay early. With large financial setbacks, there may not be enough savings available. You must then borrow money. Remember that the interest for a regular loan is much higher than the interest that you pay for a mortgage. Moreover you can
do not deduct that interest from the tax.
Deduct less interest
Do you pay off the mortgage early? Then consider that you can deduct less mortgage interest from the tax. That is a major drawback. You then no longer make optimal use of the tax benefits of having a mortgage. Your taxable income will therefore be higher. You may therefore fall into a higher tax rate as a result.
The increase in taxable income can also result in certain allowances that you may receive, such as the care allowance and childcare allowance, being reduced. You may not even receive any healthcare allowance at all. The limit for care allowance is € 28,720 for a single person and € 35,996 if you have a supplementary partner. In addition, you are therefore no longer entitled to health care allowance.
Difference between buying and selling
The early repayment of the mortgage also leads to a greater difference between the proceeds of your new home and the mortgage debt. You have to use that surplus value for financing another house. Don’t you do that? Then you can deduct less interest from the tax, because the amount to be deducted is reduced by the surplus value. You also need a higher mortgage to finance your new home.