Annuity vs. Linear Mortgage: Which One to Choose?

The two repayment types Dutch buyers can choose from, why they are the only two, and what the choice actually costs. A €500,000 example showing €58,500 more interest on one and €668 higher monthly payments on the other.

When you take out a Dutch mortgage you choose between two repayment types: annuity (annuïteitenhypotheek) and linear (lineaire hypotheek). Both run for a standard 30 years and both repay the loan in full. What differs is the shape of the payments — and, over thirty years, the total.

Why only these two

It is worth knowing why the menu is so short. Since 1 January 2013, interest on a new mortgage is only deductible if the loan is repaid in full within 30 years on at least an annuity schedule. Annuity and linear are the two forms that satisfy that rule.

This is why you cannot take out a pure interest-only mortgage (aflossingsvrije hypotheek) as a first-time buyer and still claim mortgage interest relief. Interest-only still exists — homeowners who took one out before 2013 keep their rights, and lenders will often allow a portion of a new mortgage to be interest-only — but on that portion there is no deduction.

One more piece of the same rule: the deduction lasts a maximum of 30 years, and that clock starts with the loan, not with the property. If you move and take existing mortgage debt with you, the years already used come along too.

Annuity mortgage

Your total monthly payment — interest plus repayment — stays constant for as long as the interest rate stays the same. Early on, most of it is interest and only a little repays the debt. Over time that flips: the interest portion shrinks and the repayment portion grows.

The consequence people miss is that although the gross payment is flat, the net payment rises. Your tax relief is calculated on the interest, and the interest falls every month. You pay the same amount to the bank each month but get less back each year.

Linear mortgage

You repay a fixed slice of the principal every month — the loan divided by 360 — and pay interest on whatever is left. Because the balance falls by the same amount each month, the interest falls steadily, and the total monthly payment falls with it.

You start high and get cheaper every single month. It repays debt fastest and costs the least in total interest.

Side by side

What the difference actually is

A €500,000 mortgage at 4% over 30 years, at a marginal tax rate of roughly 37%:

Read the trade-off in two numbers. Linear saves roughly €58,500 in interest across the term. Annuity costs roughly €668 less per month at the start, when the boiler breaks and the kitchen needs doing and you have just spent your savings on the buying costs.

Neither is objectively right. Linear wins on arithmetic; annuity wins on the first five years, which is when most purchases actually fail.

Calculate your monthly payment

How to choose

In practice the decision comes down to three questions:

• How tight are the early years? Your maximum mortgage is calculated on the annuity schedule, so choosing linear does not let you borrow more — it just means higher payments on the same loan. If the linear payment is uncomfortable, that is the answer.
• Do you expect your income to rise? Annuity suits a rising income; linear suits a flat or falling one, because it front-loads the pain while you can bear it.
• How long will you keep this mortgage? Most of linear's advantage accrues over decades. If you expect to move or refinance within a few years, much of the theoretical saving never materialises.

One thing worth knowing whichever you choose: most Dutch lenders let you make penalty-free extra repayments up to a set percentage of the original loan each year — commonly around 10%. An annuity mortgage with disciplined extra repayments can behave much like a linear one, with the option to stop in a bad year. Check the exact terms in your mortgage offer.

A separate decision: how long to fix the rate

Do not confuse the repayment type with the fixed-rate period (rentevaste periode). They are independent choices. The repayment type decides the shape of your payments; the fixed-rate period decides how long your interest rate is guaranteed — commonly 5, 10, 20 or 30 years.

A longer fixed period usually carries a higher rate in exchange for certainty. Your maximum mortgage is also affected: with a short fixed period, lenders apply a stricter test, because they must assume the rate could rise when it ends.

If you have the 30% ruling

If you hold the expat ruling, part of your salary is paid tax-free, so your taxable income — and possibly your marginal rate — is lower. Since mortgage interest relief is applied at your marginal rate, the refund is worth less to you than to a colleague on the same gross salary without the ruling.

The ruling runs for a maximum of five years, and the percentage is due to fall from 30% to 27% on 1 January 2027 for those without transitional rights. Both facts matter here, because the extra net income you are budgeting from is temporary and slightly smaller than it used to be.

That argues for the annuity form for most ruling holders: keep the committed monthly payment low, and use the surplus cash flow from the ruling for penalty-free extra repayments while you have it. That way the money goes into the loan without locking you into a higher obligation once the ruling ends. If your income is high and you are confident it will stay that way, linear remains mathematically cheaper.

Where to go next

• Deep Dive: Hypotheekrenteaftrek — how the relief is actually calculated
• How Much Can You Borrow? — the ceilings on your mortgage
• The 30% Ruling and Mortgages — what lenders do with it
• First-Time Home Buyer in the Netherlands — the whole process