It’s probably the biggest expense you’ll ever make. Buying a house. And to be able to afford that house, you have to take out a good mortgage. Or maybe you already have a mortgage and are looking for ways to save extra money. In both cases, there is good news. In this article, we tell you how you can save on a new mortgage, but also how you can save money on an existing mortgage.
1. Save on a New Mortgage
Are you going to take out a mortgage? In that case, these first 5 tips especially apply to you.
Because now that you are not committed to anything, it is smart to think carefully about your decisions.
Below are some important considerations.
1.1 Choose the lowest interest rate
When you talk about the mortgage, you always talk about the mortgage interest. And since 2018, that interest has been on a nosedive. There is even talk of negative mortgage interest rates.
Don’t be fooled by these kinds of interest rates. Of course, a low-interest rate is ideal, but you should not lose sight of the additional conditions.
Fines for switching, for example, or choosing a variable interest rate. In this case, always seek advice from an independent (!) mortgage advisor. They know which option is best for you.
1.2 Select a shorter run time
A shorter-term is not feasible for everyone. Most people, therefore, opt for the standard period of 30 years. Nevertheless, you can see if it is possible to fix a period of 20 years with the help of savings or any parents.
The monthly costs are therefore a lot higher, but the final costs that you pay on the mortgage are therefore a lot lower.
Note that this is especially the case with a higher mortgage interest rate. In the case of a negative mortgage interest rate, it could possibly be more advantageous if you extend the term.
Also see how you can save on your fixed costs, so that you may be able to shorten the term of the mortgage.
1.3 Shorter fixed-rate period
You can also choose a shorter fixed-rate period. You can easily withdraw 1 – 1.5% of the mortgage.
But keep in mind that things will not always go even better with mortgage interest rates. They will go up again someday.
If you have a variable interest rate that suddenly jumps from 1% to 4%, you may run into serious problems.
Choosing the variable interest rate is therefore fairly risky, especially when the interest rate is already very low.
1.4 Mix different mortgage types
The perfect mix is created by combining different mortgage types. For example, can you repay a lot now, but less in a while, and would you like to use as much mortgage interest deduction as possible?
In that case, you can have the mortgage consist of one, two, or even three parts. For example, you can combine a linear, annuity, and interest-only mortgage.
By starting from your current financial situation and estimating the situation in the future, you can save a lot of money on your mortgage.
1.5 Bring in as much of your own money as possible
The less money you borrow, the less interest you have to pay. It is therefore advisable to borrow as little money from the bank as possible, especially if the interest rate is high.
Have you saved up your student loan, have you received savings, or is there an inheritance waiting for you?
In that case, it might be smart to put it ‘in the bricks’. This also makes it worth more than if it is in your bank account and inflation does its work.
2. Save on your current mortgage payments
Already have a mortgage and wondering if you can save money? Yes, of course. Even more than someone who has to take out their first mortgage. Because interest rates on mortgages have fallen sharply since 2019.
There are therefore a large number of advantages that you can achieve on a current mortgage. In total, it can be thousands to tens of thousands of euros. Below you can see how you also save.
2.1 Check the conditions after the fixed-rate period has expired
Every mortgage has a fixed interest period. That is often 10 or 20 years. After that period, the bank must agree to a new interest rate with you.
It is always advisable to think carefully about the interest that you agree on afterward.
Especially in times when mortgage interest rates are falling, it can be useful to take a look around you.
The banks are probably not keen on cutting interest rates from 5% to 1%.
That while you can get that interest at other banks. Is your fixed-rate period over, or are you now paying a (too) high mortgage interest?
Then you can use tips 2.2 and tip 2.3.
2.2 Interest rate averaging
Interest averaging occurs when you approach the bank with a request to lower the mortgage interest rate.
For example, you pay 5% mortgage interest, while the market interest rate is 1.5%. So there is a difference of 3.5% between them.
On a house of 200,000 dollars, that saves interest alone quickly more than 50,000 dollars over the entire term of the mortgage.
In the case of interest averaging, the bank offers you a new interest rate. This interest is often between your current interest rate and the market interest rate.
So in this example, the bank would probably want to offer an interest rate of 2.5% to 3%. You also have to pay a penalty, but this is spread over the remaining term of your mortgage.
2.3 Switching / transferring a mortgage
Switching to another bank is often cheaper than interest rate averaging. Interest rate averaging is especially useful if you by definition want to stay with the same mortgage lender.
If you are not tied to your bank, then refinancing a mortgage often yields much more money.
You then pay a fine for canceling your mortgage at one bank, while you are offered a new low-interest rate at another bank.
You can co-finance the fine in the new mortgage, or you can pay it yourself. Because you benefit from the very lowest market interest rate, you can sometimes save tens of thousands of euros.
2.4 Extra repayments
Many mortgages have the option to make interim repayments. This often concerns a maximum percentage of the remaining mortgage debt.
The interim repayment has a major effect, especially at the beginning of your mortgage. Suppose you have a simple mortgage of 200,000 dollars and an interest of 2.5%.
If you do not pay anything in the meantime, this mortgage will cost you 265,000 dollars after 30 years.
So for every 100 dollars that you borrow, you pay back $132.50. To put it very simply: if you pay off 100 dollars extra every month, you save $ 32.50.
Of course, there are certain nuances that you have to make and you also have to take into account things such as mortgage interest deduction.
A mortgage advisor can always give you the best advice for your situation.
2.5 Check All Insurance
When you take out a mortgage, a number of insurance policies are involved. Did you take out a mortgage more than 5 years ago?
In that case, life insurance is a good one to check. The rates for this insurance have fallen considerably in recent years.
It is also possible to transfer your insurance policies to another provider. In this case, pay attention to the life insurance policy.
Given that you are of an older age than before, the premium may have increased proportionally to the savings you make when switching.
In addition, it is useful to check other insurances, so that you are not under-or over-insured.
2.6 Deposit extra premium with Savings Mortgage
With a (bank) savings mortgage you can also deposit an extra premium to save money on your mortgage. This has one big advantage compared to the accelerated repayment of your mortgage.
The savings mortgage has much more tax advantage.
Because you put the money aside at an interest rate that is equal to the mortgage, you do not lose money. You also earn more money with it than if you put it in a regular savings account.
2.7 Have interest adjusted in case of equity
Every mortgage consists of several parts. The interest surcharge is one of them. This is a surcharge that you pay when the bank considers your mortgage to be a higher risk.
For example, you borrow the maximum amount for the mortgage. The interest surcharge can then easily amount to 0.5% to 1%.
You pay this on top of the existing mortgage interest. But the bank does not adjust the interest surcharge on its own.
Have you paid off more than half of your mortgage, or has the value of your house increased enormously due to a renovation?
Then you can request the bank to make some changes to the interest surcharge. In many cases, they reduce the storage, or it disappears completely.
So a simple saving!
2.8 Making a home more sustainable
Making your home more sustainable is one of the better investments you can make.
Every month you save on fixed costs such as gas, water, and light. Consider, for example, solar panels on your roof.
Although this does not immediately save you on your mortgage, it does save you more money. And you can use that money to pay off faster or to save.
3. Use an independent mortgage advisor
There is a good chance that you do not know all the details about mortgages. That is precisely the reason that there are so many mortgage advisers.
But beware: not all mortgage advisers are independent. And for advice, that is of course what you are looking for.
Below are therefore some short tips for choosing the right and most advantageous (independent) mortgage advisor.
- Choose someone who is good at advising, rather than selling.
- Choose a certified financial planner with appropriate training.
- Choose an advisor with a wide network of banks, instead of just 2 or 3 options.
- Make sure that the consultancy costs are presented as a fixed price instead of an hourly wage to avoid surprises.
- Check whether giving advice on term life insurance is included in the total price.
- Make sure that your advisor remains your regular point of contact throughout the entire process to avoid delays.
- Only work with an advisor who focuses on your goals, interests, and vision of the future.
- View the costs for any aftercare in the event of changes in private or macro-economic matters such as a banking crisis.
With this list of options in your hands, you have the opportunity to significantly reduce the costs of a mortgage.
Before you know it you will be saving thousands of dollars on your mortgage.
And even though you don’t immediately notice that in your wallet, you know for sure that you have not paid too much money every month for decades. And that is of course a good feeling.