Savings mortgage

How does a savings mortgage work?

With a savings mortgage you pay monthly interest on the loan, plus a contribution to a savings policy. That contribution is made up of a savings part and a premium for death risk. Just as with the bank savings mortgage, you earn exactly the interest on your savings that you pay on the loan. That fixes your final capital, and at the end of the term you repay the whole mortgage in one go. If you die earlier, the insurance makes sure the mortgage is repaid anyway.

Important tax rules

A new savings mortgage with the right to mortgage interest relief is off the table since 1 January 2013. So the type mainly matters for anyone who already had one before that date. The savings mortgage closely resembles the bank savings mortgage, with one key difference: it runs through an insurer, which tends to make it a bit pricier thanks to policy costs and insurance tax.

Pros and cons

Pros

• Maximum tax benefit: the loan stays the same during the term (within the transitional rules).
• Guaranteed capital build-up, so the final amount is fixed.
• Includes death-risk cover.

Cons

• The policy is hard to take to another provider.
• Often more expensive than a bank savings mortgage due to policy costs and insurance tax.
• No longer available as a new mortgage with interest relief.

Monthly costs and refinancing

Your monthly cost consists of interest plus the contribution to your savings policy. If the rate falls, you also earn less savings interest and have to contribute a little more to reach the same final capital. Refinancing is possible, but count on early-repayment penalties and notary and advice costs. Whether continuing, refinancing or surrendering is smartest for you depends heavily on your policy, so have it worked out in advance.