Penalty mortgage

Do you want to save money on your mortgage and take advantage of the low interest rates without paying the penalty interest mortgage? So a cheaper mortgage with lower monthly costs. You can read how this works here.

Fix mortgage interest

The mortgage interest is currently historically low. Taking out a new mortgage on your home with lower monthly costs could be a solution. However, when you took out your current mortgage, you have made agreements with the bank about paying off this mortgage and paying the mortgage interest.

To protect yourself against a rise in interest rates, the interest is often fixed for a specific period. Usually it concerns a period of 10 years, but longer is also possible. The term of a mortgage is often 30 years. You pay both a partial repayment and an agreed amount of interest to the bank every month.
During the fixed-interest period, the mortgage interest rate remains the same and therefore does not fall if the interest rate falls in the meantime. If a home owner nevertheless wants to take advantage of a lower interest rate, he can only refinance his mortgage. He must then pay a so-called penalty interest.

What is meant by penalty interest mortgage?

If you decide to pay off or change your mortgage before the agreed period has expired, the bank will miss out on a large amount of monthly interest. The penalty interest has been devised to prevent this.

Penalty interest is a compensation for the lending party to compensate for the lost interest. The amount of the penalty interest to be paid depends on the amount of the mortgage that is still outstanding, the length of the fixed-rate period that remains, agreements about the penalty-free repayment amount and the difference between the agreed mortgage interest and the current interest rates.

Cheap mortgage without penalty interest

However, due to the low mortgage interest rates, many homeowners are highly motivated to convert their mortgage to lower costs, without having to pay a penalty interest mortgage. How does that work and what do you have to do for it?
Homeowners have discovered a trick. A homeowner does not have to pay penalty interest when he sells his home. The so-called ABA construction offers a solution.

What is an ABA construction for a mortgage?

An ABA construction means that the home owner (A) sells his house to a known person (B). The mortgage costs are then repaid without penalty. After the sale, A buys the house back with a cheaper, newly concluded mortgage. In this way he exchanges his old mortgage for a new, cheap mortgage.

Even with the notary fees (twice) and transfer tax, this construction can generate a lot of money. If the redemption takes place within six months, the transfer costs only have to be paid once.
If the repurchase of your old home takes place too quickly, the bank might think that there is intent. Banks are not happy with you if you try to avoid the penalty interest mortgage.

Risks of avoiding a penalty interest mortgage

A condition for the success of this construction is therefore that it takes some time to buy back the house. Many banks have included in the conditions within which period a former home owner may not become the owner of a house again.

In addition, the home owner may be obliged to move after the sale of his home. If it turns out that the home owner has not moved into another home after the sale, the bank can still charge him a penalty interest on the old mortgage.
The bank may also refuse to take out the new mortgage, because it does not want to finance this 'penalty-interest mortgage' construction.

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