Mortgage type

Annuity mortgage

With an annuity mortgage you transfer the same gross amount every month, for the whole term. In the early years that is mostly interest and you repay little. As time goes on it flips around: less interest, and more and more repayment.

How does an annuity mortgage work?

There is a good reason the annuity mortgage is by far the most common type in the Netherlands. Your monthly amount, the annuity, breaks down into two parts: interest and repayment. As long as your rate is fixed, the gross amount you transfer stays the same. What does change is the balance between those two parts.

In the early years you still pay interest on your full debt, so most of your monthly amount goes to interest and little is left to repay. The further into the term you get, the lower your debt and your interest, and the more goes towards repayment. Because you can deduct that interest (in part), your net costs are lower at the start than later on.

Annuity mortgage calculation example

An example makes it more concrete. You borrow € 350,000 at 4% interest, over a 30-year term (360 months). The monthly amount comes from the annuity formula:

monthly rate / (1 − (1 + monthly rate)^{−number of months}) × loan amount

In this case you end up at around € 1,671 gross per month. As long as your rate is fixed that amount does not change, only the split between interest and repayment shifts along. Curious what it comes to for your own amount and rate? Run it through our mortgage calculator.

Pros and cons

Pros

Fixed, predictable gross monthly payments within the fixed-rate period.
You repay the full mortgage within the term (usually 30 years).
Lower starting payments than a linear mortgage.
Meets the tax requirements for mortgage interest relief.

Cons

Your net costs rise over the years as the tax benefit shrinks.
You repay relatively little in the early years, so your debt falls slowly.
Over the full term you pay more interest than with a linear mortgage.

Is an annuity mortgage the best choice for you?

Do you want certainty and predictable monthly payments, without facing the highest costs straight away? Then an annuity mortgage is usually a good fit. Whether it is also the smartest choice for your taxes and finances depends on your income, your plans and how much you want to repay. If you are torn between annuity and linear, put the two next to each other with an adviser.

Frequently asked questions

Frequently asked questions about the annuity mortgage

What is an annuity mortgage?

A mortgage where your monthly amount stays the same throughout. That amount is made up of interest and repayment. At first you pay a lot of interest and repay little, later that balance flips around completely.

Why do my net monthly payments rise?

Each year you pay slightly less interest, so you can also deduct less. Your gross amount stays the same, but your tax benefit shrinks. As a result your net payments creep up over time.

What is the difference with a linear mortgage?

With an annuity mortgage your gross amount stays the same. With a linear mortgage you repay a fixed amount each month, so your payments fall instead. Linear is cheaper over the whole term, but you do start with higher payments.

Am I eligible for mortgage interest relief?

Yes. You repay the loan in full within 30 years and at least on an annuity basis, which meets the tax requirements. So the interest you pay is deductible.

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