Repayment mortgage

In case of an interest-only mortgage an expat never saves for the repayment of the loan, he/she repays the mortgage when the property is sold. In case of a repayment mortgage one saves to repay the mortgage loan at the end of the term. This is the main difference between the repayment mortgage and the interest-only mortgage.

There are several methods to save an amount over the years to pay back the entire loan or parts thereof.

• Nett savings - To repay the mortgage loan the expatriate makes regular savings into a bank account. These regular payments can be made on, for example, a monthly of yearly basis. This is the easiest method of saving to repay the mortgage.
• Investment account - In the investment account a capital is accrued to eventually repay the mortgage loan. There are several ways to accrue this capital. Both regular payments as a lump sum payment are an option. The ultimate capital depends on the return on the investments.
• "Kapitaalverzekering Eigen Woning" (KEW) - A KEW is a kind of life insurance in which regular payments have to be made. The insurance pays out a lump sum in the event of death or at the end of the term. This lump sum than has to be used to repay the mortgage.
• KEW bank saving - As from January 1st, 2008 it is also possible to link a KEW clause to a blocked bank account. The bank account will be unblocked at the agreed date to repay the mortgage.

It is possible to combine these different methods of saving for the repayment of the mortgage. To gain the maximum tax advantages it is not wise to repay small parts of the mortgage loan over the years. When an expat repays part of the mortgage loan, the interest costs decrease. When these costs decrease, the tax advantage for the expat will be reduced with each repayment made.