Homeowners Face Rising Monthly Mortgage Payments
Homeowners who took out mortgages in the past decade will experience higher monthly payments as their fixed-rate terms expire, due to recent interest rate increases. However, the impact is somewhat softened by increased mortgage tax deductions.
Interest Rate Trends and Mortgage Impact
Between 2016 and 2021, interest rates were historically low. Since then, the average ten-year mortgage rate without the National Mortgage Guarantee (NHG) has risen sharply, from 1.05% to 4.07%, an increase of over 3 percentage points.
During the low-rate period, about 16% of mortgages were fixed for up to ten years, according to the advisory firm De Hypotheker.
Effect on Homeowners With Interest-Only Mortgages
De Hypotheker’s scenarios show that homeowners with partially interest-only mortgages feel the strongest impact. For example, a couple who in 2016 borrowed €450,000 at 2.4% fixed for ten years, including €200,000 interest-only, would now face an additional €206 monthly payment at today’s average rate of 4.05%.
“Thanks to higher mortgage interest deductions, the increase is limited; without this tax advantage, their monthly payments would rise by €430.”
Summary of Effects on Household Budgets
Mark de Rijke, commercial director at De Hypotheker, concludes that the overall effect of rising interest rates on households is generally manageable.
“The impact of the higher interest rates on households seems generally manageable.”
Author’s summary: Rising interest rates after a decade of low fixed-rate mortgages increase monthly payments, but tax deductions help ease the financial strain for most homeowners.