An interest-only mortgage is a simple product. During the term, the customer does not have to repay anything and pays monthly interest to the lender. At the end of the term, or as much earlier as the property is sold, the mortgage debt itself must be repaid to the lender.
Backgrounds
Affordability: now, but also in the future
It is important that the monthly costs of the mortgage, as long as it exists, remain affordable. Because there is no need to repay during the term, there is a good chance that the mortgage debt still exists at the moment that thirty years of interest deduction has been enjoyed. And then it is important that the mortgage is also affordable if the tax benefit of the interest deduction has disappeared and / or the disposable income is lower due to retirement.
Refinance
At the end of the term of the mortgage, the mortgage debt must be repaid. If that is not possible with saved money, you will opt for extension of the mortgage or refinancing, possibly through another lender. The new lender will check whether the new mortgage and the associated costs still fit the income.
A lender has the duty to check whether a mortgage is suitable for the consumer. To assess this, an annuity mortgage of 30 years with a notional interest rate of 5 percent is assumed. The monthly costs are compared to the income.
Insurers' ambition
The lenders have the following ambition:
Customers with a (partially) interest-only mortgage will not be faced with financial surprises as a result of events that can already be foreseen.
Providers ensure that customers can get a good picture of the future affordability of their interest-only mortgage, so that they are not faced with surprises at this point.
This ambition means that lenders feel responsible to inform their customers about:
- the details of the mortgage known to the lender that are relevant to (the future affordability of) interest-only mortgages;
- the future state of affairs (consequences of retirement, end of interest deduction, refinanability);
- the risks that may arise;
- the possibilities that exist to reduce any risks.
Gain insight into affordability
The lenders have no insight into the future income position or the capital position of their customers. In order to inform customers whether they can expect affordability problems or refinancing problems, cooperation from the customer himself is needed.
Financial advisors
Informing the client and possibly advising him afterwards is primarily a role of the client's financial advisor. After all, the financial advisor is the person who has put together the mortgage and is the specialist par excellence to determine whether the financing is still appropriate and what may need to be done to get the financing fit again.
If, for whatever reason, the financial advisor does not inform the client sufficiently or not in time, the lender will inform the client himself about the future affordability and refinancability of his interest-only mortgage. Insurers want to prevent customers from facing financial surprises as a result of events that are foreseeable. Where advice is desired, insurers will refer to the financial advisors.