How difficult can this be, thought Johan Oosterbeek (81). He has lived in the same owner-occupied house in the Overijssel town of Hardenberg for over forty years. Since his wife died in 2001, he has lived there alone and has no children. He would prefer to ‘cash in’ some of the surplus value of his home – after deducting his mortgage debt, his house is now worth five thousand euros more.
Oosterbeek has “a few pensions” in addition to his AOW, but by far the largest part of his assets is in the house. It’s money he can’t access. Inconvenient for large incidental expenses, for example when he was recently forced to purchase a new car because the old one did not pass the MOT. Almost simultaneously, a costly replacement of the central heating system was required. And yes, an addition to his pension would also be quite welcome, says Oosterbeek. “Just some extra money to live a little easier.”
‘Eating’ part of the house turned out to be easier said than done. The most obvious option is to increase the current mortgage. But that was rejected by the bank. “They didn’t want to increase a cent. I had too little income, they said, to be able to bear the higher costs. And I can no longer easily get a new mortgage because of my age. They always fear that you are old and can immediately become ill or die.”
And so Oosterbeek looked at his old familiar house – where five tons are ‘stuck’ in stone. Although there are no figures, it is quite conceivable that he is not the only one in this situation. Many retirees have by far the largest part of their assets in their own home, but not everyone has enough income to capitalize on this by increasing their mortgage. They can only move in when they sell the house, but moving is often unattractive due to a lack of suitable housing or high costs. This also applies to Johan Oosterbeek: “I really don’t like that. I want to continue living here in this beautiful neighborhood.”
And so the search began: which directions can you take if, as an older person, you want to convert the ‘paper’ equity of your current home into hard euros?
Exotic financial products
In situations like that of Mr Oosterbeek, the interest-only mortgage used to regularly offer a solution: the buyer only pays the interest monthly and only repays it upon sale or at the end of the term. However, this form of borrowing (which is immensely popular among Dutch people) has been in decline for some time now. Under pressure from regulator DNB and the European Central Bank, banks are gradually reducing the interest-only loan percentage of mortgages. Every mortgage taken out nowadays must be repaid to a large extent. This is disadvantageous for those who want to withdraw excess value, as the borrowed money goes back ‘into the stones’.
Anyone looking for other solutions will end up with exotic financial products and providers whose names no one in line at the bakery will know. Constructions like sale and leaseback for example, where you sell your house to an investor and then rent it back.
Also read
Interview Maaike Schoon: ‘People really believe that they are entitled to the equity in their home’
With another form, the participation mortgage, you sell part of your house. You agree with an investor that he or she will pay out now and will later receive a percentage of the sales value of your house in the event of your death or sale.
The advantage of this type of construction is that no new credit or debt is involved. The disadvantage is that they are often difficult to understand and the providers operate outside AFM supervision (because there is officially no loan). Moreover, the additional one-off costs are unpredictable and often very high; Before any excess value is returned, you will soon have to pay thousands of euros for an appraisal and closing costs.
More common is the ‘cash-in mortgage’ or ‘eat mortgage’. Instead of paying the monthly interest to the bank, it is added to the mortgage debt. In the event of death or sale, this will be settled with the bank. In other words, instead of allowing the mortgage debt to shrink, the bank actually increases the debt over time – and in return the homeowner receives cash to spend.
It is not easy to find an ‘eating construction’, according to the 81-year-old Oosterbeek. ‘It’s an expensive solution, but it’s pretty much the only one.’
Photo Eric Brinkhorst
Be careful with the elderly
Most established providers in the banking world do not offer eat-up mortgages, says independent financing advisor Roel van de Bilt. These are less common products that are sometimes difficult to understand for the elderly. “It is not that banks have no heart or do not favor older customers. They have a duty of care to their customers, they must ensure that they do not provide more credit than someone can afford.”
Van de Bilt, who previously worked at Rabobank’s real estate financing branch for 25 years, knows that banks are in any case more cautious when granting new mortgages to elderly customers. This not only concerns financial risks, but also the image. “Suppose someone with an extra mortgage falls down the stairs, urgently needs money for sky-high healthcare costs and is therefore no longer able to bear the monthly costs in the long term. Do you, as a bank, want to be the one to evict a 91-year-old woman with healthcare needs?”
You should also not become ‘too old’ with an eat-up mortgage, because as time passes your assets become smaller and smaller.
Yet there are regular banks that offer cash-in or eat-up mortgages. ABN Amro and its subsidiary Florius, among others, do this, thereby serving a select group of homeowners. “In fact, only if you have little income, a lot of equity and you do not want or cannot move to a smaller house, for some people it is the only way to use equity,” says Thomas de Leeuw, founder of mortgage consultancy firm Frits. “And you pay a lot for that.”
De Leeuw does not often see buy-in mortgages. “There is little demand for it. Also because you cannot actually release a lot of money with it. Banks charge high interest rates. Your interest costs are easily more than a third higher than with a normal mortgage, partly because banks are obliged to maintain larger buffers for these types of mortgages.”
The closing costs are also high, De Leeuw explains; you have to have your home reappraised and pay high closing costs. And then there are also risks for the homeowner with a mortgage mortgage – for example, that your house (the collateral!) may become less valuable if interest rates rise. Due to the effect of interest-on-interest, the debt with a mortgage mortgage increases extra quickly; The longer you do this, the faster your power decreases.
So you shouldn’t get ‘too old’ with an eat-up mortgage, because as time passes your assets become smaller and smaller. Although, according to De Leeuw, banks will always run out safe play and ensure that they do not provide mortgages for the full value of the home. “That is their duty of care, and also to prevent them from being left with a residual debt.”
A good conversation with heirs is also not an unnecessary luxury if you are considering a mortgage: they see their inheritance quickly evaporate with such a mortgage. “It is all extra money that goes to the bank,” says De Leeuw, “and that is a reason for many people to abandon it.”
On the road with the touring caravan
After a long time puzzling, 81-year-old Johan Oosterbeek finally found a solution. He switches to a new mortgage provider, a large bank, where he gets a mortgage with a fixed interest rate for five years. During that period, the mortgage debt grows by 14,000 euros every year, partly due to the high costs of interest-on-interest. “I am not paying off, so my mortgage debt is increasing. But that is of course not so bad, because I have no heirs.”
Oosterbeek will receive 37,000 euros in return. He is delighted about it, it is the addition to his current income that he so desperately wanted. Although he did spend around 5,000 euros on closing costs and the appraisal and is accruing much more debt than he gets in cash. “An expensive solution, but pretty much the only one.”
Oosterbeek himself estimates that when he is 86, he will have been able to enjoy it for at least another five years. “I still drive a car and may still travel within the Netherlands with the touring caravan. And other than that, it is a matter of life. Enjoying it, every day.”
