What is a Dutch mortgage? Lender to offer home loans where rates decrease over time
A Dutch-owned mortgage lender is launching fixed-rate products where the interest rate decreases as you pay off the loan.
April Mortgages has started offering refinancing products from 4.99% for those taking out a mortgage for between five and 15 years.
It will launch mortgages for first-time buyers in March.
But unlike other lenders, April will automatically switch to a lower loan-to-value margin and lower interest rate as homeowners pay off their loans or their property increases in value.
Normally, homeowners can only do this if they refinance.
April also abolished early repayment fees for people looking to move or pay off part of their mortgage.
However, if you want to take out a new mortgage before the end of the term of your agreement, you will have to pay early repayment charges.
A prepayment penalty is a penalty you must pay to your mortgage provider.
Meanwhile, new customers must pay a £195 sign-up fee and a £995 completion fee.
April currently offers mortgages from 85% Loan-to-Value, with plans to expand this to 95% “in the coming months” for those with a lower deposit.
Tim Haag, commercial director, said he believed Dutch-style mortgages were a “fairer way” to approach lending.
April currently offers homeowners the opportunity to remortgage on a 15-year deal with a 60% loan-to-value rate of 4.99%
Those who remortgage with a loan-to-value of 85% would face a rate of 5.29%. These rates decrease as you pay off the loan.
For example, if you started with a loan-to-value of 85% on a €250,000 loan to be repaid over a fixed term of 15 years, your monthly repayments start at €401.94 for the loan and €1,102.08 in interest.
By month 35, your loan-to-value would drop to 80% and your interest rate to 5.19%.
Monthly repayments on the loan would be £472.93, but £1,017.64 in interest – £13.46 less in total payments.
In month 135 you will pay a total of £34.70 less per month in loan and interest payments than if you had stayed at the original interest rate of 5.29%.
Over the entire 15-year fixed term, a borrower would save £5,127 in interest and pay off £1,330 of the home loan if they met all payments and their loan-to-value fell from 85% to 60% over that period. compared to keeping them at 85% and the original interest rate of 5.29%.
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April is not the first lender in recent months to shake up the mortgage market.
Perenna launched fixed-rate mortgages for up to 30 years last September, claiming this would reduce the burden on borrowers from interest rate fluctuations.
Are Dutch-style mortgages worth it?
Nick Mendes, from estate agent John Charcol, said the obvious benefit of the April offer is that the interest you pay falls as you pay off your mortgage.
He added that some may prefer the stability of a longer term and that the lack of early repayment fees for those looking to move was a bonus.
Meanwhile, David Hollingworth said April's new offering could benefit buyers with a smaller deposit and those looking for lower interest rates further down the line after the range move.
But, he said, while the April mortgage products won't charge you an early repayment fee if you want to move, you will still be charged if you want to take out a new mortgage before the end of the deal period.
As always, remember to compare both rates and costs before committing to a mortgage deal.
For example, while the 75% LTV rate was set at 5.09% in April, First Direct currently offers a home loan with a maximum 75% LTV of 5.4%. This will incur a product surcharge of £490.
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