If I Had Less Mortgage

Most people are only dreaming about being mortgage free. Those who have managed to pay off their mortgage probably feel a huge relief. We currently have a quite significant amount of mortgage, over EUR 400k. This is nearly the value of our house, so I guess it doesn’t come as a surprise that I really wish it was less. I wish, because if I had less mortgage… I would get more! This might come as a surprise, but let me explain why would I go that!

In the current low interest rate environment, home equity line of credit (HELOC) is an extremely powerful tool to boost your wealth. Partially this is also what we have used in order to finance the purchase of our first rental apartment. It all went well, the only small problem was that because of our new outstanding mortgage is close to the value of our house, so we fall under a higher risk category, which meant higher interest rate on our existing mortgage as well.

In the Dutch mortgage market, your interest rate is determined based on how long you wish to fix your interest rate, and what is the ratio between your outstanding mortgage and your home value. As a specific example, an interest rate table looks like this:

mortgage risk categories

Based on the above table, if your outstanding mortgage is between 65-85% of your home value and you fix the rate for 3 years, you will pay 1.7% interest. If you’re between 90-101% and you’re fixing for 20 years, the interest is 2.99% etc.

The Plan

So what would I do if I had (much) less mortgage? I would definitely buy another apartment. No down payment, just using our HELOC. Let’s take a specific example and take an exact copy of our first rental property.

I have already wrote a separate article on the costs of buying that apartment. Our total cost was EUR 146,972.21, but let’s round it up to 150k. In order to get this money, I would use the HELOC, trying to aim an interest rate under 2%. 1.93% fixed for 10 years sounds pretty sweet and safe. But in order to get that, we would need to have a maximum 85% loan to home value ratio.

As mentioned before, our home currently worth EUR 420k. 85% of this is EUR 357k. If our current mortgage was EUR 207k, we would be able to get 150k with 1.93% interest. With a 30 years annuity mortgage, this would mean EUR 549 monthly payment in extra.

How much net income would the apartment generate? The yearly income of our existing property is EUR 10,200. We need to deduct the costs from it I have already calculated the expected yearly costs in the article about cash on cash return, but just to summarize again:

  • Taxes – 234.46
  • HOA fees – 1,200
  • Maintenance budget – 1,000
  • Property management – 1,131.41
  • Vacancy – 425
  • Total – 3,990.87

Based on the total net income would be EUR 6,209.13 per year, or EUR 517.43 per month that almost covers the EUR 549 mortgage payments. 31 euro per month for an extra apartment? Count me in!

This is what I would do… if I had less mortgage… 🙂


Readers, do you have an own home with low loan to value ratio? Have you considered the above and if no, why not?


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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



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