Build wealth faster with low mortgage rates

Building wealth in times of low savings rates? It is possible! It is now possible to grow your wealth. Discover how much you can save monthly.

Savings interest rates have been falling for years and will remain low for a long time. With the savings in your savings account, you are (almost) no longer building up any assets. But how do you let your assets grow? Your house offers a solution in this time. Because in almost the same line as savings interest rates, mortgage interest rates have also fallen. And that is favorable!

It has never been so cheap to borrow money to buy a home. We have even seen mortgage rates of 1% for a period of 10 years. But I don't want to move at all, I hear you think. And you don't have to. You can also use the low mortgage rate to your advantage without moving. How? By refinancing. You can take out a new mortgage for your current home at the same low rates.

I will explain how it works. Don't feel like reading? Contact me directly and discover what your options are.

I will explain how it works. Don't feel like reading? Contact me directly and discover what your options are.

Less tax benefit and still more left over

When you borrow money to buy or finance a home, you have a debt and with a debt comes repayment. Due to the low interest rate, this can be very different than before. This has to do with the mortgage interest deduction. Mortgage interest deduction is a deductible item. You may only deduct the mortgage interest that you pay for your own home under certain conditions. If you meet these conditions, you may deduct the interest paid from your income. This is particularly interesting with a high interest rate and a high tax rate. Exactly the two things that change: the high interest rate is no longer there and the tax rate at which you deduct is lower. In 2020, the latter is still a maximum of 46%. In addition, your owner-occupied home allowance is higher due to the higher WOZ values. In short; your tax benefit is much smaller.

An example: You have a home worth 500,000 euros and a mortgage of 350,000 euros. That means an equity of 150,000 euros. Suppose you have a mortgage, of which 100,000 euros is interest-only. And suppose the interest has fallen from 4% to 1.75% in recent years. Let's do some calculations:

This will earn you more than 85 euros per month! The tax benefit has become a lot smaller, but you will also pay less for the same loan due to the low interest.

Interest-only mortgage €100,000

Old situation 4%
New situation 1,75%
Gross interest per month €333.33 €145.83
Net interest per month €180 €78.75
Tax benefit per month €153.33 €67.08
Net difference per month €86.25

Out-of-the-box
Because the tax benefit is getting lower and lower, other possibilities arise. It is therefore advisable to seek advice from a mortgage advisor or financial specialist. Bouvy Advies always thinks in possibilities and out-of-the-box with you. For example, it is not always financially necessary to fully utilize the mortgage interest deduction. Sometimes it is more interesting to put part of the mortgage in Box 3. You do not have mortgage interest deduction on that part, but you are more flexible. You can then better determine yourself how you pay off the debt.

An example: you choose to transfer your mortgage – due to the low mortgage rates – and you borrow an additional 100,000 euros. You will not receive mortgage interest relief on that part, but you will receive it deposited into your account. You will then pay 145 euros interest per month for this. Because the interest on the remaining part of your mortgage will also be lower, your total monthly payment may be comparable to what you currently pay per month. So with the same monthly payments you will have 100,000 more.

Building wealth for later
You want to make the right choice for now and for the future. So yes, of course you will have to pay off that 100,000 euros at some point. But maybe that will only be when you sell the house. You can now use your released equity to build up capital.

In the Netherlands, we have to take more care of our own pension, the education of the children or assets if we want to stop working earlier. You can invest the 100,000 euros from this example. There are also many possibilities for this, suitable for your situation and the degree of risk taking where you feel comfortable.

Investing often gives you a better result in the long term. So it could just be that you make 4% return on your assets. In 20 years, that 100,000 euros will have grown to an amount of over 219,000 euros. Enough to pay off the mortgage (which also means lower or no monthly payments at all) and you will also have 119,000 euros left for your pension or one of the other financial goals.

Independent advice

Interesting material and examples. There are many more options that could potentially yield money. Which solution suits you best and yields the most depends on your personal and financial situation. We see it happen all too often that the wrong product is purchased online. Therefore, always seek personal and customized advice. An independent mortgage advisor looks at your situation and thinks from your best interests.

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