An annuity mortgage is a type of mortgage where you pay the same gross amount to the lender every month. This payment consists of two parts: interest and repayment of the loan.

Initially, the amount mostly consists of interest. As time passes, you will have less interest and more repayment of the debt. The amount you pay stays the same until the end of the term.

How does it work?

With an annuity mortgage, the total loan amount is spread over equal monthly payments during the entire term. Usually, this term is 30 years.

Example:

You borrow €400,000 for 30 years at a fixed rate of 4%. Every month, you pay €1,909 as long as the interest rate does not change.

• In the first month you pay €1,333 interest and €576 repayment.
• After 10 years, you pay € 990 interest and € 919 repayment.
• In the last month, you pay €6 interest and €1,903 repayment.

Keep in mind that your net monthly costs will increase over the years. In the beginning, you mainly pay interest, and you can deduct this from your taxable income. As you pay less interest over time, your tax deduction decreases, so your net costs go up.

An annuity mortgage is a good choice if you:

• Want certainty about your monthly payments. You pay the same amount every month, including repayment and interest.
• Have a stable income and like predictable expenses.
• Do not want or can't afford the higher initial payments of a linear mortgage.

We advise the annuity mortgage for first-time buyers. You know exactly what to expect every month. A linear mortgage starts with higher payments, and this might be too stressful or expensive for first-time buyers.

• Tax benefits: You can use mortgage interest deduction. This can lower your net monthly costs, especially at the start.
• Your mortgage will definitely be repaid by the end of the term.
• Your debt goes down every month.
• Your gross and net monthly payments are lower at the start. This makes this mortgage ideal for first-time buyers.

Disadvantages of an annuity mortgage

• Your debt decreases more slowly than with a linear mortgage. With a linear mortgage, you repay the same amount of debt every month.
• In gross terms, you pay more interest. At the start, the amount you are paying mostly consists of interest. You are not repaying much. The interest is based on the full loan amount. You pay several thousand euros more than with a linear mortgage.
• Your net monthly costs increase over time. You are barely paying interest by the end, so you cannot get a tax benefit from interest deduction.

With an annuity mortgage, you can also deduct interest from your taxable income. Especially in the beginning, you benefit from this deduction. As you repay more, you pay less interest, and the tax benefit decreases. Your net monthly expenses will rise over time, since there's less interest to deduct.