Increasing Your Mortgage or Taking Out a Second Mortgage

The key points at a glance

If your home has gone up in value, it can make sense to increase your mortgage or take out a second mortgage to fund a renovation or a major expense. Ask a mortgage adviser for guidance and do a mortgage calculation to see whether you can handle the extra costs. That way you can make the right decision for your specific situation.

1. How does increasing your mortgage work?

If your home has gone up in value and you have equity (overwaarde), you can increase your mortgage. This can be useful if you want to renovate, for example, or finance a large private expense. There are two ways to increase your mortgage:

• You can increase your current first mortgage. This is possible if your mortgage was registered at the notary for a higher amount than you actually borrowed.
• You can also take out a second mortgage alongside your existing one. This can be useful if you can't cover the renovation or major expense with your current mortgage.

You have equity when your mortgage is lower than the value of the property. This can happen in several ways:

• The property increases in value
• Part of the mortgage has been repaid
• The mortgage was initially lower than the market value of the property

2. Privately increasing your mortgage

If, when you took out the mortgage, you chose to register it at the Land Registry (kadaster) for a higher amount than you actually borrowed, you can opt for a private increase (onderhandse verhoging). This also applies if part of the mortgage has already been repaid.

Say you bought a property for €300,000 and have since repaid €100,000. It is then possible to increase the mortgage by €100,000, provided your income allows it. The mortgage may not exceed the market value of the property.

The advantage of a private increase is that you don't need to go to the notary again. There are still advice and brokerage costs involved, however. A private increase can only be done with your current provider, since the existing contract is already in place. Note that the term and interest rate don't change, as these are already set out in the original contract.

3. Second mortgage for a renovation

If it isn't possible to privately increase your mortgage for a renovation, taking out a second mortgage may be an option. This means taking out an additional loan with the same provider as your first mortgage, using your current home as collateral.

Keep in mind that taking out a second mortgage involves more work than simply increasing an existing mortgage. Your home may need to be revalued, for example, and notary costs may be incurred. Want to know how much extra you can borrow? Calculate your second mortgage to see what's possible in your situation.

If your home is being renovated, you can claim the costs as a tax deduction. However, the renovation must meet certain requirements to qualify for tax relief. Financing is then possible via a construction deposit (bouwdepot). A bouwdepot is a dedicated account for renovations and the funds are only released once the work actually takes place.

4. Increasing your mortgage for a renovation

Increasing your mortgage to cover the costs of a renovation or energy improvements is a common option. If you're renovating, you may take out a second mortgage to make full use of the market value of your home. This means you don't have to pay all the renovation costs out of pocket straight away.

When renovating, you can take out a second mortgage that allows up to 100% of the post-renovation market value of the property to be financed. This means you don't have to fund the renovation entirely yourself.

An alternative to a second mortgage is borrowing through a revolving credit or personal loan. However, these come with higher interest rates. It's therefore important to weigh the pros and cons of all options before deciding how to finance your renovation.

5. What does increasing your mortgage or taking out a second mortgage cost?

There are costs involved in increasing your mortgage. As described above, there are two options:

• Private increase
• Taking out a second mortgage

In both cases, costs are charged for arranging the mortgage (advice and brokerage). With the provider itself, this averages around €1,000. A valuation report is also required to determine how much equity your home has, and this comes with its own costs.

If a second mortgage is taken out, you'll also face notary fees on top of the above costs. This does not apply with a private increase.