First time buyers are turning to interest-only mortgages
First-time buyers are increasingly opting for interest only-mortgages, according to new figures from mortgage advisory group De Hypotheker.
In the first quarter of this year, 14% more young home owners opted for a partially or entirely interest-only mortgage and their number has almost doubled on two years ago, De Hypotheker said.
One in six young buyers is now opting for the cheaper mortgage, in order to reduce their monthly outgoings. ‘The popularity of the interest-only mortgage is down to the very low mortgage interest rate in combination with ever-rising house prices,’ said commercial director Menno Luiten.
‘With an interest-only mortgage, starters benefit less from the tax deduction, but the lower monthly payments clearly outweigh this – partly due to the low interest rate.’
Luiten estimates first time buyers with a €350,000 mortgage can save €259 a month with a mortgage in which they only pay back half the principal loan.
Banks have agreed that the interest-only component in mortgage can account for no more than 50% of the value of the property.
Interest only mortgages are not without risk, particularly if the buyer borrows a lot compared with the value of the property. Buyers must also make provisions to pay off the principal at the end of the loan period.
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