Moving for a lower mortgage loan interest rate?

That the current mortgage interest is currently historically low, we probably do not need to explain further. But what if you took out your mortgage well before this time of special interest rates?

Then you are dealing with a much higher mortgage interest rate than is currently the case. Is it worth moving out so that you can take advantage of this lower mortgage interest rate? Does this provide you with enough to start buying moving boxes?

Get rid of that high interest


You look enviously at those new homeowners who have taken out a mortgage with a much lower interest rate than you did. For example, if you took out your mortgage more than ten years ago, you pay an interest of around 6%. This is much higher than the current interest rate of around 2%.

If you could replace your current mortgage with a new one, your interest charges would fall sharply. You do pay penalty interest for this mortgage transfer. This penalty interest can, in turn, ensure that the benefit that you achieve with a lower interest rate is (largely) canceled out, which makes transferring not always the most advantageous option.

But how do you get rid of that high interest without paying a penalty interest? Another option is moving. Because when selling your home, you pay off your current mortgage in one go and take out a new one. As a result, you do not pay penalty interest and you can use the current lower interest rates. This allows you, for example, to live more generously at lower monthly charges.

Example calculation


What exactly is the advantage of a lower mortgage interest rate? Suppose you have a mortgage of 300,000 dollars. In 2009, you took out a mortgage for this property with an interest rate of 6%, which ensures a gross interest rate of 18,000 dollars.

Calculated with the current mortgage interest of 2%, the gross interest would be 6,000 dollars. A gross difference of 12,000 dollars per year in interest.

When do the benefits outweigh the costs?


Of course, you are not only dealing with the benefits of a lower interest rate. The gross interest benefit that you get with a lower mortgage interest can increase considerably as you see in the sample calculation, but also the costs that you have to make for a move.

Moving yourself costs money, but also the design of your new home. Maybe the house is not entirely to your liking and you still want to renovate and do not forget a possible construction of the garden.

In addition to these costs, which you can make as small or as large as you want, you always have to deal with costs for the notary and transfer tax.

A residual debt


You may not be able to imagine it now with current house prices, but a few years ago many homeowners had to deal with a house that was ‘underwater’. If your home value is lower than the mortgage you currently have, moving is often not a smart option. You will then have to deal with a residual debt that you will be confronted with when moving.

Differences in mortgage


Another thing to take into account is the type of mortgage that you now have and what you get after a move. The tax rules regarding an interest-only mortgage have changed since 2012.

For example, you can no longer deduct the interest that you pay on an interest-only mortgage that you took out after 1 January 2013 from the tax (the mortgage interest deduction). There is a transitional arrangement for those who have taken out an interest-only mortgage in the past.

It may, therefore, be that your older mortgage was (partially) repayment-free and you are now going to convert this into a linear or annuity mortgage. With these last two variants, you also repay part of your mortgage each month. You will not receive a tax refund on this repayment of your mortgage.

You only get a tax refund on the interest you pay. A change in your mortgage type can, therefore, cause major differences in your current monthly payments because you are going to pay more, which means that relocating does not make much sense at the moment.

Your specific situation

It depends very much on your personal specific situation whether moving is more beneficial for you. This depends, for example, on your income, your current mortgage, the house you have in mind and your own wishes and future plans. Look at Good Finance for a mortgage advisor who can help you with this.

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