Linear Mortgage

How Does a Linear Mortgage Work?

A linear mortgage is ideal for people who want to reduce their debt quickly and are looking for decreasing monthly payments over time. It is important to note that initial payments are higher than with other mortgage types, so it's essential to ensure your financial situation is suitable for this payment structure. Read more about how a linear mortgage works below.

Redemption

• Redemption: With a linear mortgage, the amount borrowed is evenly distributed over the life of the loan. This means you repay the same amount of capital every month.

Interest Calculation

• Interest Calculation: Interest is calculated based on the remaining outstanding balance. In the beginning of the loan, when the outstanding balance is high, the interest payments are higher. Over time, as the loan amount is repaid, the interest payments become lower.

Monthly Payments

• Monthly Payments: The monthly payments in a linear mortgage are higher than in other mortgage types at first because you pay a significant amount in repayment in addition to interest. As the loan progresses, the repayment amount remains the same, but the interest rate decreases, lowering the total monthly payments over time.

Total Interest Cost

• Total Interest Cost: Because the repayment is constant and the outstanding amount of the loan gradually decreases, the total interest cost with a linear mortgage is generally lower than with other mortgage types.

Interest and Repaying

A linear mortgage is repaid by paying a fixed amount of repayment of the borrowed capital over the life of the loan. In addition to interest calculated based on the remaining balance of the loan. Repayment is even, meaning in each repayment a fixed part of the loan is paid off step by step equal or proportional to how a linear mortgage is repaid.

First Monthly Payment

• First monthly payment: At the beginning of the loan, the remaining balance of the loan is full. The first monthly payment consists of a repayment amount and interest.
• The repayment amount is calculated by dividing the total amount borrowed by the number of payment installments.

Following Monthly Payments

• Following Monthly Payments: Each month, the repayment amount remains the same. Since the outstanding balance of the loan decreases with the amount of repayment you pay each month, the interest charged on that balance becomes lower.

Redemption Amount

• Redemption Amount: Throughout the life of the loan, the repayment amount remains the same. This means you pay the same amount of capital every month.

Last Repayment

• Last Repayment: At the end of the term of the loan, the borrowed amount will be fully repaid. You will normally pay off the loan interest and therefore have a smaller final repayment.

Benefits of a Linear Mortgage

A linear mortgage offers several advantages:

• Lower total interest costs - You pay less interest overall compared to an annuity mortgage
• Decreasing monthly payments - Your payments reduce over time, freeing up income later
• Faster debt reduction - Build equity in your home more quickly
• Eligibility for mortgage interest deduction - Benefit from tax advantages

The Terms and Conditions

The terms and conditions for a linear mortgage can vary depending on the lender, region and other factors. Here are some general aspects and conditions that often differ in a linear mortgage:

Maturity

• Maturity: This refers to how long you have to repay the mortgage loan in full. This can vary, usually between 10 and 30 years, but the term can be shorter or longer depending on your choice and availability with the lender.

Interest

• Interest: The interest rate determines how much interest you will pay on the loan. This can be a fixed rate that remains constant throughout the term of the loan or a variable rate based on market interest rates or another financial index.

Monthly Payments

• Monthly Payments: Is a linear mortgage, monthly payments include the same fixed amount of repayment. The borrowed amounts are the same and include a fixed amount of repayment, making the monthly payments predictable.

Early Repayment

• Early Repayment: Some linear mortgages offer the option of making additional payments to repay the loan faster. This can help reduce overall interest costs. Check with your lender about possible early repayment conditions.

Costs and Fees

• Costs and Fees: As with other loans, there may be costs and fees associated with taking out the mortgage. These can include closing costs, administration costs, and other fees. Make sure to discuss and understand all costs before finalizing the mortgage.

Getting Started with a Linear Mortgage

Ready to explore if a linear mortgage is right for you? Here's what to do next:

Frequently Asked Questions