Converting an Interest-Only Mortgage to an Annuity Mortgage in the Netherlands

If you have an interest-only mortgage in the Netherlands, you do not necessarily have to keep it interest-only until the end of the mortgage term. In many situations, it is possible to convert all or part of an interest-only mortgage into an annuity mortgage.

Doing so means your monthly mortgage payment will usually increase because you start repaying the mortgage debt as well as paying interest. In return, your outstanding mortgage gradually becomes smaller, and you reduce the amount that still needs to be repaid at the end of the mortgage term.

You may be able to make this change with your existing mortgage lender, or you can refinance the mortgage with another lender. These are not the same thing, and the costs, mortgage assessment, and financial consequences can be very different.

In Dutch, you may encounter terms such as aflossingsvrije hypotheek oversluiten naar annuïteiten and aflossingsvrije hypotheek omzetten naar annuïteiten. This page explains exactly what those terms mean and what you should consider before changing your mortgage.

Want to know what converting your mortgage would mean for your monthly costs?

Schedule a free mortgage consultation with Expat Mortgage Platform. Your first consultation is free and non-binding.

Can You Convert an Interest-Only Mortgage to an Annuity Mortgage?

Often, yes.

An interest-only mortgage, called an aflossingsvrije hypotheek in Dutch, can frequently be converted fully or partially into an annuity mortgage.

With an interest-only mortgage, you normally pay mortgage interest without making compulsory monthly repayments of the principal. With an annuity mortgage, your scheduled payment consists of both interest and repayment.

Changing from one to the other therefore changes an important part of your mortgage.

Instead of reaching the end of the term with the complete interest-only mortgage still outstanding, you gradually reduce the debt.

Whether you can make the change depends on your mortgage lender, your current mortgage conditions, your financial situation, and whether you want to stay with the same lender or move the mortgage elsewhere.

If you first want a complete explanation of how an interest-only mortgage works, read our guide to interest-only mortgages in the Netherlands.

Converting Versus Refinancing an Interest-Only Mortgage

There are two main ways to change an interest-only mortgage into an annuity mortgage.

The first is converting the mortgage with your existing lender.

The second is refinancing the mortgage with another lender.

These are sometimes treated as the same thing, but there is an important difference.

An internal conversion can therefore be simpler and less expensive.

Refinancing provides a different advantage. You can compare other lenders, mortgage rates and conditions at the same time.

The cheapest route is not automatically the best route. You need to compare the complete financial result.

What Does Aflossingsvrije Hypotheek Oversluiten Naar Annuïteiten Mean?

The Dutch phrase aflossingsvrije hypotheek oversluiten naar annuïteiten roughly means refinancing an interest-only mortgage into an annuity mortgage.

There is an important terminology difference.

Oversluiten normally means replacing your existing mortgage, often by arranging a new mortgage with another lender.

Omzetten normally refers to changing the mortgage structure with your existing lender.

Both approaches can result in an interest-only mortgage becoming an annuity mortgage, but the process and costs can differ considerably.

If your objective is simply to start repaying your mortgage, it therefore makes sense to investigate an internal conversion before assuming you need to refinance the complete mortgage.

If another lender offers substantially better conditions, refinancing may still produce the better result.

Why Convert an Interest-Only Mortgage to an Annuity Mortgage?

The most important reason is straightforward: you start reducing your mortgage debt.

Suppose you have a €250,000 interest-only mortgage.

If you continue paying only interest and make no voluntary repayments, the mortgage can still be €250,000 many years later.

If that mortgage is converted into an annuity mortgage with a repayment schedule that fully repays the debt, the outstanding balance gradually decreases until the scheduled debt has been repaid.

That can provide several advantages.

You reduce the amount you owe on the property. You become less dependent on refinancing at the end of the mortgage. You gradually build more equity through mortgage repayment. Your interest costs can fall over time because interest is charged on a decreasing mortgage balance.

For homeowners approaching retirement, reducing a large interest-only balance can also make future mortgage planning easier.

The trade-off is higher monthly payments today.

What Happens to Your Monthly Payment?

Your monthly payment will normally increase after switching from interest-only to annuity repayment.

That is because an interest-only payment mainly consists of interest, while an annuity payment contains both interest and repayment.

Consider a simplified example.

You have a €250,000 interest-only mortgage, a 4% interest rate, and 20 years remaining.

With an interest-only mortgage, the monthly interest payment would be approximately:

€833 per month

The €250,000 mortgage would still remain after 20 years if you made no additional repayments.

If the same €250,000 were converted into an annuity mortgage and fully repaid over 20 years at a constant 4% interest rate, the scheduled payment would be approximately:

€1,515 per month

The difference is approximately €682 per month.

That difference is not simply an additional cost. A significant part is repayment of your own mortgage debt.

After 20 years, the annuity mortgage would be scheduled to have a remaining balance of €0.

With the interest-only structure, €250,000 would still need to be dealt with.

These figures are illustrative and exclude tax effects, lender fees, and changes in the interest rate.

Does an Annuity Mortgage Cost More Than an Interest-Only Mortgage?

The monthly payment is usually higher, but that does not mean the mortgage necessarily costs more in the long term.

Using the same €250,000 example at a constant 4% over 20 years, an interest-only mortgage would generate approximately €200,000 in interest over those 20 years if the balance remained unchanged.

The annuity structure would result in approximately €113,600 of interest over the same period.

The reason is that the annuity mortgage balance becomes smaller every month.

You therefore pay interest on progressively less debt.

The interest-only mortgage keeps charging interest on the full €250,000 because the debt does not automatically decrease.

This is why comparing only the first monthly payment gives an incomplete picture.

Can You Convert Only Part of an Interest-Only Mortgage?

Yes, and this can be one of the most useful options.

You do not necessarily need to convert the complete interest-only mortgage.

Suppose you again have a €250,000 interest-only mortgage.

Instead of converting the entire amount, you might convert €125,000 into an annuity mortgage and leave €125,000 interest-only.

Using a simplified 4% interest rate and a 20-year remaining term, the €125,000 annuity portion would have a scheduled monthly payment of approximately €757.

The interest payment on the €125,000 interest-only portion would be approximately €417 per month.

Your combined payment would therefore be approximately:

€1,174 per month

That is higher than the approximately €833 payment on the fully interest-only mortgage, but lower than the approximately €1,515 payment required to convert the complete €250,000 into an annuity mortgage.

After 20 years, the annuity portion would be repaid according to schedule while the €125,000 interest-only portion would remain.

A partial conversion can therefore provide a middle ground between maintaining low monthly costs and reducing your future mortgage debt.

Whether this structure is available depends on your lender and circumstances.

What Happens to Your Mortgage Interest Deduction?

This is one of the most important parts of the decision.

The Dutch mortgage interest deduction rules depend heavily on when the mortgage debt originated and what the borrowed money was used for.

Interest-only mortgage from before 2013

If you have qualifying owner-occupied-home mortgage debt dating from before 1 January 2013, transitional rules may apply.

An existing interest-only mortgage can therefore still qualify for mortgage interest deduction even though it is not being repaid according to an annuity or linear schedule.

Refinancing such a mortgage does not automatically mean you lose that historical treatment.

If the qualifying mortgage debt remains the same when refinancing, the existing mortgage interest deduction can generally continue subject to the original maximum deduction period.

Converting the mortgage into an annuity mortgage does not mean you suddenly receive a new 30-year deduction period.

The history of the existing qualifying debt remains relevant.

Interest-only mortgage from 2013 or later

For new owner-occupied-home mortgage debt originating from 1 January 2013 onwards, the general rule is different.

To qualify for mortgage interest deduction, the debt generally needs to be repaid at least according to an annuity or linear schedule within the required period.

A normal interest-only mortgage does not meet that repayment requirement.

Converting such a mortgage into a qualifying annuity or linear repayment loan can, depending on the circumstances, change its tax treatment from the point at which the required conditions are satisfied.

Because mortgage histories can consist of several separate loan parts with different dates and tax treatments, this should be checked for your individual mortgage rather than assumed.

Read our complete guide to mortgage interest deduction in the Netherlands for a broader explanation.

Increasing the mortgage at the same time

Be especially careful if you refinance and increase the mortgage.

An older interest-only mortgage may have historical tax rights, while additional borrowing after 2012 can fall under different rules.

If the additional amount is to qualify as owner-occupied-home debt for mortgage interest deduction, its purpose and repayment structure matter.

Your mortgage can therefore contain multiple loan parts with different tax treatments.

Do You Lose Pre-2013 Mortgage Rights by Switching to Annuity?

Not simply because you choose an annuity mortgage.

This is an important distinction.

If you have qualifying existing mortgage debt from before 2013, the historical tax treatment is linked to the qualifying existing debt and the applicable transitional rules. It is not dependent on keeping the mortgage interest-only forever.

Changing the repayment structure can therefore be possible without automatically losing the existing mortgage interest deduction.

However, refinancing, increasing the mortgage, moving home, or combining old and new mortgage portions can make the situation more complicated.

Always have the complete mortgage history checked before making the change.

What Does It Cost to Convert an Interest-Only Mortgage?

The answer depends largely on whether you convert the mortgage with your current lender or refinance it with another lender.

An internal conversion can involve advice costs, administration costs, or product-change costs.

You may not need a new mortgage deed when the lender can change the mortgage within the existing arrangement, which can avoid notary costs in many straightforward cases.

Refinancing with another lender is normally more extensive.

Potential costs can include:

• Mortgage advice and arrangement costs

• Property valuation costs

• Notary costs for the mortgage deed

• Land Registry costs

• Costs for cancelling the old mortgage registration

• Possible early repayment compensation

• NHG-related costs if applicable

Some qualifying refinancing costs connected with an owner-occupied-home mortgage can be deductible for Dutch income tax purposes.

That does not automatically mean every cost is deductible or that financing the costs through your new mortgage gives the same tax result.

The total cost of refinancing should therefore be included in the comparison.

A lower interest rate is not enough on its own to prove that refinancing is financially worthwhile.

Could You Have to Pay an Early Repayment Penalty?

Possibly.

If you refinance while your current fixed-rate period is still running, your mortgage lender may charge compensation for ending the existing interest agreement early.

Whether compensation applies and how much it is depends on your mortgage conditions and the difference between your contractual interest rate and the relevant comparison rate.

Some mortgages also allow a certain percentage to be repaid each year without compensation.

An internal change of mortgage type does not always have the same consequences as moving the mortgage to another lender.

This is another reason to calculate both options before making a decision.

Will the Bank Check Your Income Again?

If you refinance with a different mortgage lender, expect your financial situation to be reassessed.

The new lender needs to determine whether the mortgage is acceptable under its current lending criteria.

Your income, existing debts, property value, age, and other financial commitments can all be relevant.

For expats, the lender may also consider factors such as your residence status, employment contract, foreign income, salary currency and financial obligations outside the Netherlands.

An internal conversion with your existing lender can be different.

The exact procedure depends on the lender and the size of the change.

However, converting an interest-only mortgage to an annuity mortgage raises the required monthly payment, so affordability can still be relevant.

Do not assume that an internal conversion is automatically approved.

Should You Choose Annuity or Linear Repayment?

If you decide that you want to move away from an interest-only structure, an annuity mortgage is not your only option.

You may also be able to convert to a linear mortgage.

An annuity mortgage normally has a lower scheduled payment at the beginning. As long as the interest rate remains unchanged, the combined scheduled interest and repayment amount remains approximately stable.

A linear mortgage starts with higher payments but reduces the mortgage balance more quickly.

Because the outstanding debt falls faster, a linear mortgage normally results in lower total interest when comparing the same mortgage amount, term and interest rate.

For many households, however, affordability in the first years is the deciding factor.

Our annuity versus linear mortgage guide compares both structures in detail.

You can also read our explanation of how an annuity mortgage works.

When Can Switching to an Annuity Mortgage Make Sense?

Converting can be worth investigating if you want to reduce the outstanding mortgage before retirement, do not have a clear plan for repaying the interest-only balance at the end of the term, have sufficient monthly income to start making repayments, want to reduce your dependence on future refinancing, or simply want more certainty about how the mortgage will eventually be repaid.

It can also make sense if you originally chose an interest-only structure for lower monthly costs, but your financial position has since improved.

A higher salary, lower household expenses or a reduced mortgage balance can make repayment more affordable than it was when the mortgage was originally arranged.

Another reason can be retirement planning.

If a large interest-only mortgage reaches its end date after you retire, refinancing may need to be assessed using your pension income rather than your current employment income.

Reducing the mortgage before that point can lower the risk.

When Might Keeping an Interest-Only Portion Make Sense?

Converting everything is not automatically the right answer.

An existing interest-only portion can still have advantages.

You may value the lower compulsory monthly payment. You may have significant savings or investments available to repay the mortgage later. You may have a qualifying older mortgage with favourable tax treatment. You may expect to sell the property before the mortgage ends. You may also prefer a partial conversion rather than using most of your monthly cash flow for mortgage repayment.

Liquidity matters as well.

Paying down your mortgage reduces debt, but money repaid into the property is no longer available as cash for emergencies, renovations, investments or other financial goals.

The best mortgage structure therefore depends on your complete financial situation rather than on the mortgage balance alone.

What If Your Interest-Only Mortgage Is Almost at Its End Date?

Do not automatically assume the lender will simply extend it.

At the end of an interest-only mortgage, the outstanding principal still needs to be dealt with.

Possible solutions can include using savings, selling the property, extending the mortgage, refinancing, or converting part of the debt into a repayment mortgage.

Whether refinancing or extension is possible depends on the lending rules and your financial situation at that time.

If you are approaching retirement, future pension income may become especially important.

Someone who can comfortably afford an interest-only mortgage while employed may not automatically pass the same affordability assessment using retirement income.

It is therefore better to investigate your options well before the mortgage reaches its contractual end date.

Converting an Interest-Only Mortgage as an Expat

The basic Dutch mortgage rules do not create a separate mortgage type for expats.

However, international homeowners can have additional factors that make mortgage changes more complicated.

Your lender may need to consider residence status, nationality, the type and duration of your employment contract, income paid in another currency, foreign assets, foreign debts, and whether you expect to remain in the Netherlands.

Your future plans matter as well.

If you expect to sell your Dutch home and relocate internationally within a few years, aggressively converting the entire mortgage may have different advantages and disadvantages than it would for someone planning to remain in the property until retirement.

The mortgage structure should fit your wider financial plan.

How to Switch from Interest-Only to an Annuity Mortgage

A good comparison usually follows several steps.

1. Check your current mortgage

Determine your outstanding balance, interest rate, fixed-rate period, mortgage end date, and current interest-only loan parts.

Also establish when each mortgage portion originated.

That date can be important for the Dutch tax treatment.

2. Determine how much you want to convert

You do not necessarily need to convert the full mortgage.

Compare keeping the mortgage interest-only with converting 25%, 50%, 75% or 100% of the outstanding amount.

This can show how much debt reduction you can achieve without making your monthly costs unnecessarily high.

3. Calculate the new monthly payment

Do not compare mortgage structures using only the interest rate.

Calculate the actual interest and repayment payment for the remaining mortgage term.

Also compare the outstanding balance after 5, 10 and 20 years.

4. Check the tax position

Identify which mortgage portions qualify for mortgage interest deduction and under which rules.

Pay particular attention to pre-2013 mortgage debt, later mortgage increases, and any part of the mortgage that did not previously qualify as owner-occupied-home debt.

5. Ask your current lender about conversion

Find out whether the lender allows you to change the mortgage type internally and what costs and conditions apply.

This gives you a baseline option.

6. Compare refinancing alternatives

An independent mortgage adviser can then compare the internal solution with mortgages available from other lenders.

A different lender may offer a better rate or structure, but the additional refinancing costs have to be included.

7. Compare the complete financial outcome

Look beyond today’s mortgage payment.

Compare monthly costs, total interest, remaining mortgage debt, tax effects, one-time costs, and your financial position at retirement or at the end of the mortgage term.

That provides a much better basis for making the decision.

Should You Refinance or Simply Convert Your Mortgage?

If your existing lender offers a competitive mortgage rate and a straightforward conversion, staying with the current lender can be attractive.

You may avoid some of the costs and administration associated with moving the complete mortgage.

If your current mortgage rate or lender conditions are unattractive, refinancing can create an opportunity to solve two issues at the same time.

You can change the repayment structure and move to another lender.

The correct comparison is therefore not simply:

“Which lender has the lowest interest rate?”

It is:

“Which option leaves me in the strongest financial position after taking the monthly payment, remaining debt, tax position and all switching costs into account?”

Get Independent Advice Before Changing Your Interest-Only Mortgage

Converting an interest-only mortgage into an annuity mortgage can substantially change both your monthly budget and your long-term financial position.

For some homeowners, converting the complete mortgage provides the certainty they are looking for.

For others, keeping part of the mortgage interest-only and converting only a portion provides a better balance.

The most important step is to compare the options before changing the mortgage.

Expat Mortgage Platform specialises in independent mortgage advice for internationals living in the Netherlands. We can assess your existing mortgage, compare your current lender with alternatives, calculate the effect of full and partial conversion, and help you understand what the different options mean for your future mortgage debt.

Schedule your free mortgage consultation to discuss your current interest-only mortgage.

Your first consultation is free and non-binding.

Frequently Asked Questions

Can I change an interest-only mortgage to an annuity mortgage?

Often, yes. Depending on your lender, you may be able to convert all or part of the interest-only mortgage into an annuity mortgage. You can potentially do this with your existing lender or refinance the mortgage with another lender.

Is converting an interest-only mortgage the same as refinancing?

No. Converting normally means changing the mortgage structure with your current lender. Refinancing means replacing the existing mortgage, often with a mortgage from another lender. Refinancing normally involves a more extensive mortgage application and additional costs.

Can I convert only part of my interest-only mortgage?

Often, yes. A mortgage can consist of different loan parts. You could therefore keep part interest-only and convert another part into an annuity or linear mortgage, subject to lender acceptance and your circumstances.

Will my monthly payment increase if I switch to an annuity mortgage?

Usually, yes. An interest-only mortgage mainly requires you to pay interest, while an annuity mortgage requires both interest and principal repayment. Part of the higher payment is therefore reducing your mortgage debt rather than simply being an additional financing cost.

Is an annuity mortgage cheaper than an interest-only mortgage?

The monthly payment is normally higher, but total interest can be lower because your mortgage debt decreases over time. With an interest-only mortgage, you continue paying interest on the outstanding balance until you repay it.

Do I lose my mortgage interest deduction if I convert an old interest-only mortgage?

Not automatically. Qualifying mortgage debt dating from before 2013 can fall under transitional rules. Changing the mortgage type does not by itself mean those historical rights disappear. Your individual mortgage history should still be checked before making structural changes.

Can a post-2013 interest-only mortgage become tax deductible after conversion?

Potentially. A post-2012 interest-only loan that did not meet the Dutch repayment requirement can, in certain circumstances, qualify from the point at which it is converted into a loan that satisfies the applicable annuity or linear repayment requirements. Your individual tax position should be checked before relying on this.

Does refinancing restart the 30-year mortgage interest deduction period?

Not simply because you refinance an existing qualifying mortgage. For older existing mortgage debt, the original history and deduction period remain relevant. New borrowing or mortgage increases can have their own tax treatment.

Do I need a notary to convert an interest-only mortgage?

Not always. A straightforward change with your existing lender can sometimes be processed without a new mortgage deed. Refinancing to another lender will normally require notarial work because a new mortgage is being registered.

Do I need a new valuation when converting my mortgage?

That depends on the lender and the type of change. A full refinancing application with another lender will often require an up-to-date property valuation. A simple internal conversion may have different requirements.

Do I need to pass an income test again?

When refinancing to another lender, your mortgage affordability will normally be assessed again. For an internal conversion, the process depends on your lender and the nature of the change. Because an annuity mortgage has higher scheduled payments, affordability can still be relevant.

Is it better to convert to an annuity or linear mortgage?

An annuity mortgage normally has lower initial payments, while a linear mortgage repays the debt faster and generally results in lower total interest when the mortgage amount, interest rate and term are identical. Which is better depends on your income, monthly budget and financial goals.

Should I convert my interest-only mortgage before retirement?

It can be worth investigating. If a large interest-only mortgage remains when you retire, future refinancing may need to be assessed using your pension income. Gradually reducing the mortgage before retirement can lower the outstanding debt and reduce your dependence on refinancing later.

What happens if I keep my interest-only mortgage?

The mortgage debt does not automatically decrease. You need a plan for the outstanding balance, such as voluntary repayments, savings, investments, selling the property, or arranging acceptable financing when the mortgage reaches its end date.

Can expats refinance an interest-only mortgage in the Netherlands?

Potentially, yes. Expats can use Dutch mortgage structures, but individual lenders can have different requirements concerning residence status, employment, foreign income, salary currency, and international financial commitments. An independent adviser can compare which lenders are suitable for your situation.