Linear mortgage: here's how it works

Is the linear mortgage suitable for me?

A linear mortgage is especially suitable for people who have a higher income now than in the future. For example, people who will retire early or will work less. This type of mortgage gives you security because the mortgage is fully paid off at the end of the term.

The monthly repayment of the linear mortgage is the same every month. The monthly mortgage payments consists of repayment of the loan and interest. Because you repay the loan each month, the interest each month also gradually decreases. The interest you pay is tax deductible. In the Netherlands, this is called the hypotheekrenteaftrek (mortgage interest deduction). With the linear mortgage, the tax benefit is highest at the beginning of the term.

This form of mortgage is most similar to a regular loan. Your debt gradually decreases until you eventually repay the entire loan.

Additional repayment with or without penalty

Halfway through the mortgage term, you will have paid off half of your mortgage. You can often make additional repayments as well. Do you have savings? It can be used to repay the mortgage debt. Your mortgage debt is then reduced and with it, the fixed monthly amount too. You are always allowed to make extra repayments up to a certain percentage penalty-free. This is between 10 and 20% of the mortgage amount, per year. Just keep in mind that some mortgage lenders may charge a penalty if you repay more. After all, you had a contract for a fixed amount and if that amount is reduced, they are losing out on the interest earned. Check the mortgage terms and conditions carefully for this.

Linear mortgage: advantages and disadvantages

Advantages

• You have security because you repay the same amount of debt every month
• Your debt reduces
• The interest you pay reduces over time
• The tax advantage is higher at the beginning

Disadvantages

• Your monthly expenses are higher at the beginning
• The tax advantage decreases over time

Linear mortgage or annuity mortgage

With a linear mortgage, you start repaying the loan immediately. So the initial monthly costs are higher. Are you choosing an annuity mortgage? Then your monthly costs will initially be lower in the beginning than the rest of the term. With an annuity mortgage, your net monthly expenses increase each month because you gradually get less mortgage interest deductions from the Tax Administration. Fortunately, you do have the assurance that your gross monthly expenses will be the same each month. With a linear mortgage, you repay a consistent amount, thereby reducing your net monthly expenses. Annuity mortgages are generally more popular.