If you take out a new mortgage, you may only deduct the interest if you fully repay the mortgage in a maximum of 30 years. You must start immediately with this, so that only an annuity or linear mortgage is eligible. But is it better to take out an annuity mortgage or a linear mortgage?
Difference between annuity mortgage and linear mortgage
The most important difference between both types of mortgage is the way you pay off. With a linear mortgage, you pay off an equal part of the mortgage debt each month. You also pay an interest amount every month. Because you pay this interest amount on the outstanding mortgage debt, your monthly payment is relatively high at the start of the term. As the term progresses, the mortgage debt decreases, so you pay less interest and the monthly burden thus decreases.
The monthly charge for an annuity mortgage, on the other hand, remains the same throughout the term. You pay the same amount every month, which consists of a part interest and a part repayment. At the start of the term, the interest rate is relatively high and you do not pay off much. Because the outstanding mortgage debt gradually decreases and you therefore pay less interest, this ratio changes. At the end of the term, the repayment portion is relatively high.
Linear or annuity mortgage – Example
The following is an example to illustrate the difference between a linear and annuity mortgage. In this example, the associated costs and / or insurance are not taken into account.
Suppose you buy a home and take out a mortgage of 200,000 euros. The mortgage interest rate is 4 percent. The net monthly charge of an annuity mortgage is then 715 euros in the first year, while for the linear mortgage it is 974 euros. After fifteen years, the linear mortgage has a lower monthly payment.
In the last year of the term, the net monthly charge of the linear mortgage is 568 euros, while the net monthly charge of the annuity mortgage is 955 euros. Because you pay off more quickly with the linear mortgage, you have repaid more than 15 percent more after 15 years than with an annuity mortgage. As a result, you pay less mortgage interest, making the linear mortgage a lot cheaper than the annuity mortgage.
Please note: in this example, the net monthly payment of an annuity mortgage is not the same throughout the term. This is because account has been taken of the mortgage interest deduction. As the maturity progresses, the mortgage interest deduction decreases. This increases the net monthly charge.
Choose a linear mortgage or annuity mortgage?
The choice between a linear and annuity mortgage largely depends on your personal situation. The disadvantage of a linear mortgage is, for example, that the monthly payment is quite high at the start, while you are often still at the start of your career and your salary is relatively low. Can you still bear the monthly payment? The lower monthly charge of an annuity mortgage may be more appealing.
Nevertheless, a linear mortgage is financially cheaper. The total costs of a linear mortgage are lower than those of an annuity mortgage. That is because you pay more in the beginning, so you pay less interest. In addition, the monthly payment quickly decreases and after about ten years you pay less per month than with an annuity mortgage.
An additional advantage is that if, for example, you become unemployed or divorced after 10 or 15 years, you have already repaid a larger part of the mortgage. However, only choose a linear mortgage if you can actually bear the high monthly payment in the beginning.