In our country more and more people have owner-occupied homes. A wise decision, because the prices that are currently being charged for rent are literally rising. Above a certain income limit your right to a social rental property expires, so that you are dependent on expensive private renting. This means that you live in a normal house for a fairly high amount. All in all, this is a good reason to buy a house instead of renting it.
To buy a home you need a mortgage in most cases. Such a mortgage is a loan that has collateral if the debt cannot be paid; the House itself. You take out such a mortgage with a bank or an insurance company. The lender often has several types of mortgages in his portfolio that you can choose from. Together with you, we looked at the most suitable mortgage type in your situation at the start of the purchase process for the home.
Which matters determine your mortgage
What that mortgage looks like is often determined by the market situation at the time of taking out. The interest rate that applies at that time determines how much interest you must pay together with your repayment for the coming years. That interest is set in a fixed-rate period. The bank will use this to agree with the mortgage. If the interest is high at a certain point in time, the bank will try to hold you back for a long fixed-rate period. You can then think of a minimum period of 10 years.
However, if the interest rate is low, the bank will try to bind you to this fixed-rate period for a shorter period. The fixed-rate periods then run from 5 to 10 years. At the end of the fixed-rate period, the first part of your contract expires. You are then free to transfer your mortgage to another lender. Reproducing your mortgage means that your debt is passed on to another lender and that at that time new agreements are made about the mortgage type and the interest that must be paid.
A lower interest rate is attractive
Refinancing a mortgage when the interest rate is low is of course always cheaper for you. You will then pay a considerably lower monthly amount for your mortgage, leaving you with money for other things, or for extra repayment on your mortgage. If the interest rate is low at a given moment, but if you are still bound to a fixed-rate period at your bank, the bank will probably charge a penalty if you intend to refinance your mortgage at that time. It does not matter if you take out that mortgage with the same bank or with another bank.
Another type of mortgage is more attractive
We were now talking about the level of interest that can be the guiding factor for taking out a mortgage, but there are several reasons that can be considered when playing a mortgage. In that case, consider the type of mortgage that you have taken out. Did you take out an investment mortgage during a period when the stock market was booming, but is the stock market becoming uncertain now? In that case it is wise to opt for security as a homeowner.
You can then choose to choose another type of mortgage that does not involve an investment part. For example, you could opt for a savings mortgage where you deposit a part every month in a savings account that is linked to your mortgage. With the savings amount you then pay off your mortgage at the end of the repayment period.
Another mortgage type that is often chosen is the interest-only mortgage. You do not pay repayment in the meantime, but you do pay the interest on the full mortgage amount for the entire term. At the end of the mortgage period you then redeem your house with the proceeds from the sale thereof. Due to new rules, since 2015 you may no longer take out the entire mortgage amount as an interest-only mortgage. If you have a mortgage from before that period, then that may still be the case.
If you are going to refinance an interest-only mortgage at a (different) bank, then you will most likely have to deal with the fact that the new rules for an interest-only mortgage will also apply to you. Your entire mortgage will then consist of other components, which means that you may have to pay more per month. Your mortgage interest refund will probably also be lower in that case.
A bank savings mortgage; a case apart
If you have taken out a bank savings mortgage, you can refinance, but this will have relatively little effect. The reason for this is very simple. If you transfer a bank savings mortgage at a lower interest rate, then that interest will also be included in your mortgage amount, which will increase the deposit in your bank savings account. It can also be the case that your insurance premium associated with a bank savings account suddenly increases.
In this way, it is unfavorable to convert a bank savings mortgage to another lender. Your gross monthly costs will remain the same, while your net monthly costs – thus the monthly costs after the refund of your mortgage interest by the tax authorities – will increase. So you think you will benefit from a lower interest rate, but the opposite is true.
Is your home under water?
The last case where a mortgage transfer to another bank will not go is when the value of your home is lower than the total value of your mortgage. You see this especially in people who bought a house in a period when house prices were exorbitantly high. They bought a home for a certain amount, while the prices for the same home are currently much lower. In that case your house, as it is called in professional terms, is ‘under water’.
You cannot just take out a mortgage with another lender at a house that is under water. After all, they want to be sure that the sale of collateral in the event of default will be sufficient to repay the mortgage. In that case you are forced to stay with your own lender and to be satisfied with the repayment requirements that were set for you at the time. In that case, the wait is for better times when house prices will rise again so that you can switch with confidence with your mortgage.