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You would like to modify the mortgage

Refurbishing

There are several possible ways to finance the refurbishment of your home. You could use your savings or maybe you will receive a gift.

You could also increase your mortgage. This is possible in two ways. You could either increase your current mortgage or you could take out a second mortgage. Another possibility is taking out a Personal Loan

It is possible to increase an existing mortgage without involvement of the notary, but then you should have included a so-called higher inscription in the mortgage deed when you purchased the home. This is called a 'privately settled increase'. 

The lender will look at your income and the value of the home again, both in the case of privately settling the increase of the mortgage and in the case of taking out a second mortgage. You can borrow up to 100% of the market value for the purchase of a home. When you take energy-saving measures, the maximum loan may be 106%. For the time being, there are no plans to further reduce this.

If the goal of the refurbishment is to make your home more energy-efficient, you are allowed to take out a higher loan. We can further inform you about this. 

The requested mortgage sum will be placed in a construction deposit. From this deposit, the bank will pay the bills of the refurbishment either to you or directly to the construction company. 

You can choose between two types of mortgage: an annuity mortgage or a linear mortgage. The interest of the mortgage you use for financing the refurbishment is deductible, under the condition that you will repay the loan within 30 years, at least on an annuity basis. 

In certain situations it can be more profitable to take out a Personal Loan for financing the refurbishment. In case of a personal loan, the lenders will consider your income differently and the value of your home is of less importance. Besides that, there are no assessment costs, consultancy costs and, possible notary costs. It is also possible to deduct the interest on the Personal Loan, but then one must use the Personal Loan for financing the refurbishment.

 

Extra mortgage repayment

Making an extra mortgage repayment can be interesting. It is important to know how much you are allowed to repay your lender penalty-free. 

Money lenders use so-called tariff classes: the ratio between the value of the house and the amount of the mortgage. By making an extra, small repayment, your mortgage may be grouped into a different tariff class. This decreases the interest which is charged to you. 

Do you have a bank savings mortgage? Then it is worth the while to check whether an extra deposit on the bank savings account can lead to lower monthly costs or possibly to a shorter term. 

A repayment or an extra deposit can, besides affecting your mortgage, also affect your Box 3 capital and the capital gains tax you have to pay. 

 

Switching to a different lender

Switching to a different lender is also called 'refinancing'. Refinancing the mortgage might mean that you will pay a lower interest or that your mortgage can be placed into a more profitable tariff class. 

If you refinance your mortgage, you will take out a new mortgage from a different lender. With this new mortgage you will repay the current mortgage. Refinancing, however, does cost money: you must pay your advisor, the notary, and the appraiser. 

Next to the costs mentioned above, there are additional costs you should consider: a possible fee that your current lender may charge.

When determining the penalty interest, most lenders look at the difference between the mortgage interest as applied at that moment and the interest you pay. This difference is multiplied by the remaining duration of the fixed-interest term. The penalty therefore consists of the missed interest-earnings. This sum can become quite large, especially if the duration of the fixed-interest term is still long. 

Despite the costs listed above, refinancing your contract could be profitable to you.

 

Interim interest adjustment and interest averaging

Some lenders provide the possibility to change the fixed-interest term before the term has ended. You could consider this when the market interest is lower than the interest you pay. But your lender will probably miss interest-earnings because of this and will charge a fee. The lower monthly costs should of course offset the amount of the penalty, otherwise an interim changing of the fixed-interest term would be senseless.   

Besides that, there are lenders who average your current interest with the market interest. The penalty to be paid will not be charged to you directly, but is charged as a premium on the new interest. This way of decreasing the interest is called interest averaging.

 

Feel free to contact us to inform about what might be interesting to do in your situation. We can also inform you about the rules and possibilities at your current lender.