Combining with other mortgages

At most mortgage providers, you can finance a maximum of 50% of your home with an interest-only mortgage. For this reason, some people choose to combine this mortgage with an annuity or linear mortgage.

How does combining work?

Basically, you take out two loans:

• The interest-only part: You only pay interest on this amount. You do not repay the purchase amount during the term.
• The repayment part: You repay an amount every month. This can be a fixed amount, including repayment and interest. This is an annuity mortgage. Or you pay a set fixed amount of the loan, and on top of that, you pay interest. This is a linear mortgage. So it depends on which type you combine it with.

A combination of an interest-only mortgage with an annuity or linear mortgage is often chosen by people who:

• Want to reduce their monthly costs compared to fully repaying with just an annuity or linear mortgage. This combination can save you hundreds of euros per month.
• Want to build some equity by repaying part of the loan.
• Want to keep part of their mortgage for interest deduction. There is no interest deduction if you only have an interest-only mortgage.
• Expect to be able to repay the interest-only debt in the future. This can be with savings, inheritance, or by selling their current property.

Important to know

• On the interest-only part, you do not build any equity.
• At the end of the term, you have to repay the full amount in one payment.
• If the property value goes down, it can be difficult to sell without ending up with residual debt.
• The bank will check whether you can handle this risk financially. 

Below there are two examples to show how combining works and what it saves monthly.

Situation 1: Interst-only combined with annuity

• Property value: €400,000.
• Interest-only mortgage: €200,000.
• Annuity mortgage: €200,000.
• Term: 30 years.
• Interest rate: 3%.

Interest-only part

• Annual interest: €200,000 x 3% = €6,000. 
• Monthly interest: €6,000 ÷ 12 months = €500.

Annuity part
With an annuity mortgage, your gross monthly payment stays the same as long as the interest rate does not change. However, the ratio between repayment of the loan and interest changes over time.

• Total monthly payment: €843 per month.
  • First month: €343 repayment and €500 interest.
  • After 10 years: €476 repayment and €367 interest.
  • Last month: €843 repayment and €0 interest.

Total monthly payment for the combination 

• Interest-only: €500.
• Annuity: €843.
• Total: €500 + €843 = €1343.

For comparison: Fully financed with annuity
If you finance the property with an annuity mortgage only, your monthly costs will be higher.

• Total monthly payment: € 1686 per maand.
  • First month: €686 repayment and €1000 interest.
  • After 10 years: €952 repayment and €734 interest.
  • Last month: €1686 repayment and €0 interest.

Conclusion

• If you use the combination of the mortgages, you will save €343 per month.
• Keep in mind that you have to pay the interest-only part in one go at the end of the term.

Situation 2: Interest-only combined with linear

• Property value: €400,000.
• Interest-only mortgage: €200,000.
• Linear mortgage: €200,000.
• Term: 30 years.
• Interest rate: 3%.

Interest-only part

• Annual interest: €200,000 x 3% = €6,000. 
• Monthly interest: €6,000 ÷ 12 months = €500.

Linear part
With a linear mortgage, you repay a fixed amount of the loan each month. On top of that, you pay interest. Interest is calculated on the whole debt, so as you pay off more of the loan each month, the interest goes down.

• Monthly repayment: €200,000 ÷ 360 = €555.
• First month: €555 repayment + €500 interest = €1055.
• After 10 years: €555 repayment + €333 interest = €888.
• Last month: €555 repayment + €0 interest = €555.

Total monthly payment for the combination 

• Interest-only: €500 per month.
• Linear: €555 repayment per month and declining interest.
  • First month: €1055 linear + €500 interest-only = €1555.
  • After 10 years: €888 linear + €500 interest-only = €1388.
  • Last month: €555 linear + €500 interest-only = €1055.

For comparison: Fully financed with linear
If you finance the property with a linear mortgage only, your monthly costs will be higher.

• First month: €1111 repayment + €1000 interest = €2111 per month.
• After 10 years: €1111 repayment + €666 interest = €1777 per month.
• Last month: €1111 repayment + €0 interest = €1111 per month.

Conclusion

• Financing your mortgage with this combination will save you €556 in the first month. The savings get smaller over time, since the interest of the linear mortgage decreases. However, there will be no point where this combination will be more expensive than using a lineair only mortgage.
• Remember: you still have to repay the €200,000 interest-only part in one payment at the end of the term.