Mortgage types

There are two basic types of mortgages:

• mortgages based on regular repayment during the term of the mortgage;

• mortgages based on lump-sum repayment at the end of the term.

Examples of mortgages based on regular repayment are conventional or ‘straight-line’ mortgages and annuity mortgages. With these types of mortgages, the outstanding loan balance decreases each month. Measured over a 30-year period, net expenses on these mortgages are higher than those for mortgages based on lump-sum repayment at the end of the term. In practice, these mortgages are often obtained by those with limited tax benefits or those who want to secure a mortgage as soon as possible, irrespective of any financial benefits they might receive.

In the case of mortgages based on lump-sum repayment, no payments are made during the term of the mortgage, thereby ensuring that you retain maximum tax benefits throughout the term. An interest-only mortgage is an example of such a mortgage. In order to ensure that you will be able to repay the mortgage or a portion of the mortgage at the end of the term, you can choose from a number of savings forms, which can divided into two basic types:

• savings with a guaranteed return (e.g. banksparen [as described above] and savings mortgages);
• savings forms where income depends on the return on investment (e.g. investment mortgages, endowment mortgages.

The bankspaarhypotheek (savings-based mortgage) has proved particularly popular since it was launched in 2008. With this type of mortgage, the customer opens a savings account upon obtaining a mortgage. The balance in this savings account may only be used to repay the mortgage.
In addition, the scheme is subject to a number of tax rules. For example, the savings account must remain active for at least 20 years, and you are required to make a deposit into the account annually.
The main benefit of the bankspaarhypotheek is that the interest on your savings is based on the mortgage interest rate.

Suppose that you have a mortgage with an interest rate of 5.5%. If you choose the savings-based mortgage and open a savings account, you will also earn 5.5% interest on your savings balance.
In addition, the balance in your savings account will not be subject to the 1.2% tax on imputed return on investment.