Interest-only mortgage

A common mortgage type for expats is the interest-only mortgage. As the name already indicates this is a mortgage type where an expat only pays the interest on the loan and doesn’t repay the mortgage loan itself.

The assumption is made that when an expat sells his/her property, this will yield enough money to repay the mortgage. This both has advantages as disadvantages.

Advantages of interest-only mortgages.

• Lowest cost - The interest-only mortgage is the mortgage with the lowest costs. This is because there are no monthly savings to repay the loan, but only interest costs.
• Continuously high tax advantage - In the Netherlands the interest paid for the residential mortgage is tax deductible for a maximum period of 30 years. This means the monthly costs for the interest-only mortgage are fully tax deductible, when the only costs paid are interest costs.

Disadvantages of interest-only mortgages.

• Repayment risk - The most obvious disadvantage is the risk that at the end there will not be enough money to repay the full sum of the mortgage loan.
• Mortgage can't exceed 75% of the auction value of the property - This is to partially cover the risk of not yielding enough money when the property is sold. It's common practice to cover the additional mortgage loan with a different mortgage type.
• Life cover - If an expat dies before the mortgage has been repaid, the partner often is forced to sell the property because he/she can no longer afford the interest costs of the mortgage. To be sure this won’t happen it is necessary to get cover through a life cover insurance. The lump sum, which is paid in the event of death, can be used by the surviving dependent/ spouse to repay the mortgage, and/or to provide an income.

Often it is interesting for expats to combine the interest-only mortgage with another mortgage type. This finally results in tailor-made expat mortgage solutions. H&N Associates is specialised in giving expatriates A - Z mortgage advice.