Expat mortgages
What do we mean by an expat?
An expatriate (expat) is someone who is temporarily staying in a country with mostly another culture than in which he grew up. Usually they are sent by their employer, although some apply directly for an employer abroad. They should not be confused with immigrants who have –from the beginning- the intention to stay permanently. Expats often stayed only 1-3 years in the temporary residence outside their home country. They often enjoy a high salary with tax benefits and housing allowances. They assimilate only to a limited extent in their new temporary home environment. They often experience a kind of culture shock. Their partner and children (if any) are experiencing the same in their own context (https://nl.wikipedia.org/wiki/Expatriate).
Renting or buying a home
When arrived in the Netherlands the question arises: shall I rent or shall I buy a home. An answer to this question is not to give easily, however you would expect that an expat chooses to rent. The stay period of an expat abroad was namely 1-3 years and for a home this is actually too short to invest in. Besides that, in the Netherlands the duration of a (home) mortgage of 30 years is usual and to enjoy the benefit of tax reduction (as a result of the fiscal deduction of mortgage interest) this is also the maximum term of the loan. Now we see that expats change their practices. Many expats like to stay for a long(er) period in the Netherlands and to enjoy optimally the benefit of tax reduction. Moreover the rental sector has not always a favorable name (regularly, rental agents don’t return the guarantee sum to the tenant at the end of the rental period, because of alleged defects in the home). Last but not least, we see that the purchase and rent prices of homes in the larger Dutch cities increased significantly and the interest rates of mortgages are still low. All these factors often cause that expats decide to buy instead to rent a home.
Important conditions to expat mortgages
The conditions to expat mortgages differ actually not from the case that a Dutch man or woman is buying a home. But first we mention some conditions to expat mortgages which are playing an important role:
- The expat has a Nationality of one of the members of the European Union, Switzerland, Norway and Liechtenstein
- If the expat has a deviating Nationality, then a requirement will be made that the expat has a kind of permanent residence permit
National Mortgage Guarantee (abbreviation in Dutch: NHG)
In the Netherlands it is possible to apply in some cases government guarantee on a (home) mortgage loan. To that end should be met the above mentioned important conditions (concerning Nationality CQ permanent residence permit).
In addition, there is a limit to the mortgage loan to be provided. Because the average purchase price of a home is € 350,000.00, the cost limits for 2018 for already existing homes amount to:
€ 435.000.00 (2024) for homes without energy saving devices;
€ 461.100.00 (2024) for homes with energy saving devices.
In practice, often these cost limits are exceeded by expats. For that reason, we will not go into details at this place.Obligatory life insurance (on the life of the borrower/mortgagee)
If a mortgage is guaranteed by NHG (see previous paragraph) the mortgage above 80% of the house value must be covered by a life insurance on the life of the borrower/mortgagee. If a mortgage is not guaranteed by NHG, the mortgage should usually be covered above 90% of the house value by a life insurance on the life of the borrower/mortgagee.
The value of an Accredited Financial Adviser and Mortgage Planner (we are also Insurance Broker) is: to be your sparring partner and (proactive) personal guide. For example: a natural phenomenon is that ‘we humans’ sometimes tend to be financially less careful when our income increases significantly. Then we threaten to come into a 'jubilant mood’ and the idea can take root that ‘me can happen little more’. That is exactly why it is good to be regularly 'kept sharp' by your Accredited Financial Adviser and Mortgage Planner who knows what is going on in your field and speaks your language.
It will be a problem if you have a salary in e.g. USD and you want a mortgage in Euros. Dutch banks currently show themselves unwilling to provide such mortgages.
After January 1, 2013 the interest on a newly granted (home) mortgage is only tax-deductible if the mortgage will be repaid in a maximum of 30 years. You can basically choose a 'linear mortgage', which has a gross decreasing monthly amount (every month you have to pay the same repayment amount; however, the interest amount to pay every month, due to the monthly repayments, is slightly lower). Either you can choose an 'annuity mortgage', which has a gross fixed monthly amount. In case of an ‘annuity mortgage’ you amortize first a little amount and you pay a lot of interest; later on this changes into: you amortize increasingly more and you pay less and less interest; however the gross monthly amount remains the same as long as the interest rate is not reviewed (this latter occurs after the expiry of the period the interest is fixed in accordance with your contract; you will receive at latest three months before the interest reviewing date a new interest rate proposal from the lender/mortgagor). The gross monthly amount differs from the net monthly amount since the tax authorities - by way of the so called ‘interest deduction’- pay back an amount to the borrower/mortgagee.
We always look whether the charges are payable now and also remain payable in the future, in view of your current and future income/expenses and objectives. We draw up an income and expenditure statement. Net income less net expenses results in 'Consumer Disposable Income (CDI)'. Is it resulting in a surplus or a deficit? On that basis, you can set priorities and make choices.
If there are changes in your situation a new financial advice is recommended. Your objectives will be re-discussed and repositioned, partly in light of your financial position and partly in light of the risks that you may or may not find acceptable. Think about income risks (so-called "Life events", such as unemployment, disability, death, relationship termination, in the future desired situation at retirement) and the desirability of building a certain capital. If you have children this will also deserve your attention (e.g.: how to build up a capital reserve for their education and development).
We advise you to have regularly (e.g. 1 x per year or 1 x per two years) a maintenance conversation with us, your Accredited Financial Adviser and Mortgage Planner. Then together we can look at any changes that have occurred, or (may be) will occur, and we can consider again the previously selected (and possible new) objectives. In certain situations the financial position should again brought into picture by a ‘CDI statement’ (net income less net expenses, resulting in 'Consumer Disposable Income’).