When looking for a home loan to suit you, you need to decide over
how many years you want to pay it off. But how do you go about
choosing the most convenient term for you?
You decide the term
There is no ideal term. For a mortgage
loan, however, the average term is between 10 and 30 years. You
should decide the term based on a series of criteria.
Life situation
The term is linked to your age. For instance, you might choose a term
of 15 years because your children will be moving into student digs by
the time the loan is paid off and you want to be free of repayments at
that stage.
Financial resources
When you apply for a mortgage loan, our Home Expert will look at your
financial situation. He or she will then provide you with more
information on the term based on your monthly income, so you have
financial peace of mind when paying off your home.
Interest and the selected repayment option
The term is also closely linked to the interest rate. Each repayment
includes part of the principal and some interest. The proportion of
each depends on the selected method of repayment.
1. Loans with principal repayments
The most popular repayment method involves equal monthly
repayments. You pay some principal and some interest each month.
In the early years, you will pay more interest than principal, but by
the end of the term, the opposite will be the case. However, you
always pay the same monthly amount throughout the term of the loan.
Another method involves decreasing repayments. In this case,
you repay the same amount of principal each month, together with
interest on the outstanding amount. Since the amount to be repaid
decreases each month, the interest to be paid does as well. As a
result, you pay less and less (hence the term 'decreasing').
2. Interest-only mortgage loan (bullet loan)
This is ideal if you want to borrow a substantial amount of money
for a short period of time. You do not have to repay any of the
principal during the term of the loan, as long as it is repaid in full
on the date agreed with your bank. However, you still have to pay
interest on the full amount during the term. This set-up is common for
bridging loans. It can be useful, for instance, if you are
unable to finance the construction of a new home because you have not
yet sold your current home.
3. Other options
There are many more options, and combinations of methods are
possible, too. Feel free to call or
chat with one of our Home Experts at KBC Brussels Live. He or she
will draw up a customised repayment schedule with a term that suits you.
Tax relief
If you opt for a mortgage loan, you qualify for tax benefits. Each
year, you can claim back tax on the interest, principal repayments and
certain premiums you pay in relation to your loan, over its entire term.
How to choose
Work out your monthly income and expenditure. Try to estimate how
well a shorter term would suit your budget. You can calculate this
accurately by simulating
your mortgage loan. Your Home expert will also be happy to help
you make a well-informed decision.
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