The rising mortgage interest rate is currently experiencing a special phenomenon for some homeowners. If you have taken out a mortgage for a low interest rate in recent years, there is a good chance that your lender will now make it attractive to make extra repayments for free. What’s up with that?
Normally you pay a fixed amount for your mortgage every month. This amount is made up of principal and interest. You can also make additional repayments, but often up to a maximum amount per year. “Many lenders allow you to make additional repayments of up to 10 percent each year without penalty,” says Oscar Noorlag, mortgage expert at Van Bruggen Adviesgroep.
“With some lenders, that is wider, even 20 percent. If you want to repay more, you can, but you pay a fine.” Banks want to assume a certain amount of profit and protect this with a so-called penalty clause.
Due to the rising mortgage interest rate, it is possible that your fixed interest rate is lower than the current interest rate. In that case, you can currently make unlimited extra repayments. So without penalty.
Bank wants to use the money for a new mortgage
“Actually, that’s quite logical,” says mortgage expert Marga Lankreijer-Kos of Independer. “If the current interest rate is higher, the bank would rather lend your money back to someone else at a higher interest rate.”
Lankreijer-Kos: “Suppose you have taken out a mortgage for an interest rate of 1.5 percent and that interest rate is fixed for another nine years, then your lender will compare it with the current interest rate of the same fixed-interest period. That is the so-called comparison interest. higher, you can make additional repayments without penalty.”
The phenomenon is not new, but the situation in recent years was different from now, says Noorlag. “It is not at all surprising if people have not heard of it before, because interest rates have generally only fallen in recent years. Now the interest is rising and people see that they can suddenly make extra repayments without penalty.”
‘In the case of a gift or inheritance, extra repayment can be attractive’
In 2016, the Mortgage Credit Directive came into effect. These are European mortgage guidelines that also include this phenomenon. Banks must comply with it and the Netherlands Authority for the Financial Markets (AFM) supervises it. “Money providers are only allowed to levy a fine if they themselves suffer from the fact that you make extra repayments. That is no longer the case,” says Noorlag.
In many cases, of course, this involves high amounts. If you can repay an extra 10 percent without penalty on a mortgage of 200,000 euros, that is 20,000 euros per year. “That is of course considerable sums,” says Lankreijer-Kos. “But if you want to repay a large amount, now is the time. For example, think of cases where you receive a gift or an inheritance, then a large amount of extra repayment on your mortgage can now be attractive. Or if you are just on the border of the capital gains tax.”
Whether extra repayment is also wise is of course a different story. Lankreijer-Kos: “The best mortgage is of course no longer a mortgage. But everyone has their own reason to make extra repayments. Saving is still not attractive at the moment, but you can of course also consider investing or putting the money in to put to your home make sustainable† The latter is currently very popular. Think of a heat pump and extra insulation. That may give you more return than extra repayments.”
