How does a linear mortgage work?

How it works

You simply divide your mortgage amount by the number of months in the term, usually 360 months for a 30-year mortgage. That is what you repay each month, no more, no less. On top of that, you pay interest on the amount still outstanding. As you repay, that amount gets smaller, and so does the interest charged on it. With a linear mortgage, your total monthly payment therefore falls gradually over the entire term.

A worked example: what you actually pay

Say you borrow €300,000 over 30 years at 4% interest.

• Monthly repayment: €300,000 / 360 months = €833
• Interest in month 1: 4% of €300,000 a year = €1,000
• Total payment in month 1: €1,833

After 15 years, you have repaid half. Your remaining debt is €150,000.

• Monthly repayment: still €833
• Interest in month 181: 4% of €150,000 a year = €500
• Total monthly payment: €1,333

As you can see, the repayment stays the same while the interest falls along with your debt. By the end of the term, you pay only a fraction of what you started with.

Linear versus annuity: what's the difference?

With an annuity mortgage, you pay the same total amount every month; only the split between interest and repayment shifts as the term progresses. At the start you pay mostly interest and repay very little. Later on, it is more and more repayment and less interest.

In practice, the difference with a linear mortgage comes down to this:

• Early in the term: with a linear mortgage you pay more than with an annuity, because you repay proportionally more.
• Late in the term: with a linear mortgage you pay less than with an annuity.
• Building wealth: with a linear mortgage you build home equity faster, because you repay more in the early years.
• Total interest costs: over the full term, a linear mortgage costs you less interest than an annuity mortgage, simply because your debt falls faster.

Who is a linear mortgage a good fit for?

A linear mortgage suits people who can handle the higher payments at the start and would rather repay a solid chunk now than spread that amount over thirty years. Think of someone in Tilburg moving to their next home on a good income who wants their housing costs to come down as retirement approaches, or people who simply want to be debt-free as soon as possible. For first-time buyers, this type is often less attractive: the monthly payments are at their highest in the early years, exactly when income usually still has room to grow.

The 30-year rule and mortgage interest deduction

Want to deduct your mortgage interest on your Dutch tax return? Then conditions apply. For new owner-occupied home loans, the general rule is that you must repay the loan at least on an annuity basis within a maximum of 30 years, following a repayment schedule fixed in advance. With a linear mortgage, you meet that requirement automatically. This repayment rule applies to loans taken out on or after 1 January 2013; transitional rules may apply to older loans.

Wondering what fits your situation?

Whether a linear mortgage is a smart choice depends entirely on your income, your plans, and how much financial breathing room you want now and later in life. We're happy to run the numbers with you: no fuss, no obligations. Call us on 06 52 69 88 22 or email Martin@belderbrandt.nl to schedule a no-obligation consultation. We're based right here in Tilburg.