5 ways to lower your mortgage payments

Making extra repayments on your mortgage can give you financial security by increasing your home equity or reducing your outgoings when you retire. Additional repayments will also bring down your monthly mortgage costs. 

If you want to significantly reduce your monthly mortgage costs, you’ll need to make a substantial extra repayment, as a small repayment won’t make much difference. If your mortgage rate is 4%, you’ll save €40 for every thousand euros you repay each year. With a mortgage interest deduction rate of around 37%, that works out at €25 per year. 

When you’re choosing whether to make extra repayments on your mortgage using your savings or investments, take a look at your return. You’ll benefit by paying off more if the net return on your savings and investments is lower than the net cost of your mortgage. 

In most cases, you can repay up to 10% of your original loan amount each year without incurring a penalty. If you want to pay off more, your bank may charge you a fee. Your mortgage terms and conditions will tell you how much you’ll be charged. The fee is tax-deductible on your tax return.

If interest rates have been declining, you can save money by ending the fixed-rate period on your mortgage and refinancing at a lower interest rate for a new fixed-rate period. If you leave your fixed-rate period early, most banks will charge you a one-off penalty. 

Ending your fixed-rate period early means the bank loses out on interest income, as interest rates are lower in the new payment period. If going mortgage rates are higher than your current mortgage rate, as is the case after a period of rising interest rates, refinancing your mortgage on a new interest rate usually won’t save you money. The only exception is if you expect interest rates to rise, or continue rising, until the next interest revision date.

A third option is to refinance your mortgage and apply interest averaging. In this case, the bank’s fees for refinancing your mortgage will take the form of a surcharge that is spread over the new fixed-rate period. Rather than settling the fees in one go, you’ll pay them as a surcharge on top of your new, lower interest rate. As explained before, you should generally consider refinancing only if the going mortgage rates are lower than your current rate.

Check whether you qualify for a lower risk surcharge. Your risk class is based on the market value of your home versus your outstanding mortgage debt. You’ll pay a risk surcharge if your mortgage is higher than the value of your home. On the other hand, if your home is worth more than your mortgage debts, the bank sees you as a less risky investment. 

If your home has risen in value or you’ve made extra repayments, you may be eligible for a lower risk surcharge. In most cases, you’ll can request this yourself from the bank. You’ll be required to provide a recent ‘WOZ-waarde’ (what your home is worth according to the municipality) or a recent property valuation report.

The fifth option is an interest rate discount, which you qualify for if your home is energy-efficient. ABN AMRO offers an interest rate discount of up to 0.15% on mortgages for energy-efficient homes.

Your ability to lower your monthly mortgage payments depends on your personal situation, the value of your home and your mortgage terms and conditions. Given the rapid rise in interest rates over the past years, refinancing your mortgage is unlikely to save you money. That said, you could stand to benefit from refinancing if interest rates go down as expected. Increases in house prices may also lead to lower risk surcharges for homeowners.