Explanation of the different mortgage loans
Here’s an overview of the most common mortgage loans in Flanders to help you make an informed decision.
1. Fixed-Rate Mortgage
With a fixed-rate mortgage, the interest rate remains constant throughout the loan term. This provides certainty as monthly payments do not change, regardless of market interest rate fluctuations.
2. Variable-Rate Mortgage
With a variable-rate mortgage, the interest rate can be adjusted periodically based on market conditions. There are different subtypes within this category:
- 1/1/1 Mortgage: Annual interest rate adjustment.
- 3/3/3 Mortgage: Interest rate adjustment every three years.
- 5/5/5 Mortgage: Interest rate adjustment every five years.
3. Semi-Variable Rate Mortgage
The semi-variable rate mortgage, also known as a hybrid mortgage, combines fixed and variable rates. The rate is fixed for an initial period (e.g., 5 or 10 years) and then becomes variable.
4. Interest-Only Mortgage
With an interest-only mortgage, you only pay interest during the loan term. The principal amount must be repaid in full at the end of the term. This type of loan is often used by investors.
5. Fixed Monthly Payment Mortgage
With a fixed monthly payment mortgage, the monthly payments remain constant throughout the loan term, but the ratio of interest to principal repayment changes. Initially, you pay more interest and less principal, and this shifts over time.
6. Bullet Mortgage
With a bullet mortgage, you only pay interest during the loan term, and the principal is repaid in one lump sum at the end. This type of loan is less common for private homebuyers and is more frequently used by businesses.
7. Revolving Mortgage
The revolving mortgage allows you to reborrow repaid amounts without signing a new mortgage deed, making it convenient for renovations or other investments.
8. Bridge Loan
A bridge loan is a short-term loan designed to cover the period between purchasing a new property and selling an existing one. This type of loan usually has a higher interest rate and a shorter term.
9. Capital-Building Mortgage
With a capital-building mortgage, you pay monthly premiums for an insurance policy or investment fund in addition to interest. The goal is to build enough capital to repay the loan at the end of the term.
10. Green Mortgage
The green mortgage offers favorable terms for purchasing or renovating energy-efficient homes. Banks may provide lower interest rates for properties with a higher energy label or for investments in sustainable technologies.
11. Social Mortgage
The Flemish government offers mortgages with favorable terms for low-income families through the Flemish Housing Fund and the Flemish Social Housing Association.
Choosing the right mortgage type depends on your personal situation, financial capacity, and future plans. It’s always advisable to compare options and seek advice from a financial advisor or mortgage broker.