Moving with a residual debt? These are the options for financing a residual debt. Read all about co-financing residual debt in the mortgage and other options for debt financing.
What is a residual debt?
Around 1 million households in the Netherlands are under water. With them, the mortgage sum is higher than the home value. This number is falling now that the housing market is picking up. Yet many homeowners still experience problems due to undervalue, especially when they move house.
A residual debt arises on the sale of a property with a lower value. The financing of this residual debt can be a hindrance when moving.
Financing residual debt
There are various options for financing a residual debt. We mention them together with the pros and cons:
Co-finance residual debt in the new mortgage
You can co-finance a residual debt in a new mortgage. This is often the cheapest solution. The new mortgage must then fall within the current mortgage standards. You can possibly use savings or a donation to get the mortgage suitable.
Co-finance residual debt as a separate mortgage
You can choose to co-finance the remaining debt as a separate mortgage, in addition to a new mortgage. At a number of banks it is then possible to borrow up to 115% or 120% of the home value. The main disadvantage is that with this form of residual debt financing you often pay a risk premium, which then applies to the total mortgage sum.
Financing residual debt with consumer credit
By financing your residual debt with a consumer credit, you pay a higher interest rate than the mortgage interest. However, because you only need financing for the residual debt, you may be cheaper at the bottom.
The number of loans grew in 2016, including for a residual debt. On the website of the consultancy firm NBG you will find a calculation example for residual debt financing. Good advice can save you thousands of euros when financing a residual debt.
Financing residual debt deductible
The interest that you pay to finance a residual debt is tax deductible. This applies to both residual debt financing with a mortgage and with a consumer loan. The residual debt must have arisen through the sale of the property between 29 October 2012 and 31 December 2017. The financing of residual debt is also deductible if it is not repaid.
Residual debt under NHG
If you have a mortgage with a National Mortgage Guarantee, then a residual debt can be waived under certain conditions. If the residual debt is due to forced sale after divorce, unemployment or disability, this is financed by NHG.