One of my financial aims for 2017 is to buy our first investment property. Well, this goal is not achieved yet. Instead, more questions are being raised, as apparently buying an investment property in the Netherlands is not easy. Let me summarize where we are at the moment.
There is one thing that we must have in order to by an extra property, which is money. And apartments are not cheap. We are looking for an investment property in the value around EUR 100-110k. There is no doubt that we will need to get a mortgage or a loan in order to finance this new property. We would need around EUR 70-80k. And this is where the problems start.
When we bought our house we were very cautious not to jump into any financially reckless situation. In the Netherlands the maximum amount of mortgage you can get is calculated based on your income. If you use your maximum possibility, you can most likely pay your mortgage every month until 30 years. However, it is almost guaranteed that you will have no extra financial flexibility and you will be the slave of your mortgage until its expiry. This will be very close to the official retirement age. Basically you can not just forget about financial freedom, but also about accumulating a reasonable amount of saving for your old age.
Based on the above considerations, the amount of mortgage we took was way-way under our maximum allowed threshold. Of course we have also considered whether buying is really a good option for us.
- Rent or Buy? – Things to Consider
- Rent or Buy? – Price to Rent Ratio
- Rent or Buy? – Interest Rate
- Rent or Buy? – Mortgage Length
- Rent or Buy? – Inflation
- Rent or Buy? – Home Ownership Costs
Based on the above I was quite confident that due to the lot of extra room we have not used for our primary mortgage, there will be no problem in arranging the financing. I was wrong…
There are many financial institutions in the Netherlands that offer personal mortgages for primary residency. But when it comes to investment mortgages, the choice is limited to a company called NIBC. At least there is an option, but there is an important condition: The minimum mortgage amount is EUR 70k, and the maximum mortgage amount is 70% of the value of the property in rented state, which is around 60-80% of the market value!
So if I calculate backwards, 70k minimum mortgage amount and 70% rented state value gives EUR 100,000. Going further, if the value of rented state is 70% of the market value, this gives EUR 143k market value. It’s not just that we would need to have over 70k in cash in order to be eligible for this mortgage, but such property is also more expensive than our desired EUR 100-110k range.
Mortgage on Our House
As the investment mortgage does not seem to be an option, maybe we can increase the mortgage on our house.
Currently we have around 320k outstanding principal on our house that was valued last year 385k. This is good, because as our principal is below 85% of the property value, we have more favorable mortgage interest rate (below 2% with 10 years fixed). In addition, due to the fast increasing property prices in our area, I believe it would be reasonable to revalue it for at least 400k.
This would give us the option to increase our mortgage amount with the 70-80k that we need. It has both pros and cons.
- Low interest rate (around 2.25% fixed for 5 years)
- All our mortgages would be with the same company which would be easier to manage.
- Longer possible mortgage length (even though I would pay it back ASAP)
- Our 320k outstanding principal amount would not fall under the <85% category anymore, therefore our interest rate on this amount would also increase by 0.5% until we reduce our overall principal below 85% again.
- The process has to go through a mortgage advisor (costs money)
It would be a possibility for us to apply for a personal loan. Based on my research at different financial institutions, the maximum allowed amount we could get is EUR 75k with an interest rate around 4.2-4.7%. This is 2% higher than the previous option, at he same time our main mortgage interest rate would not be impacted.
So we are kind of left with the second and the third option. We have already contacted our current mortgage provider in order to evaluate our options further. They have transferred our case to one of their mortgage advisers who was helpful over the phone, but then disappeared for weeks, despite of several reminders. Don’t people want to provide quality services for easy money…?
Readers, what would you do in this situation? Would you increase the mortgage on the primary house? Or go for a personal loan? Maybe a combination of the two? Is it easier to get an investment mortgage in the country where you are from? Please let me know in the comment section!
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Disclaimer: This post or any other information on the site is not intended to be and does not constitute financial advice or any other advice. I am solely sharing my idea, plan and progress on financial independence and early retirement.