With an annuity based loan you will pay equal monthly gross installments in a fixed interest rate interval (*). The costs components are interest and redemption.
From the chart you will see that during the loan (often 30 years) the interest cost component (green coloured) decreases whereas the redemption cost component (blue coloured) increases.
If you are taxed for your income in The Netherlands your tax advantage will slowly decrease and your net monthly cost level will increase (due to fact that interest paid decreases in time – and is subject to tax relief – and redemption increases and is not subject to tax relief).
(*) If your current fixed rate interval expires and a new one commences your monthly cost level will in/decrease.
Summarized you will find the main characteristics of an annuity based loan below;
equal gross monthly cost level during a fixed interest rate interval
interest cost component decreases in time whereas redemption cost component increases
hence; increasing net monthly cost level in time (provided interest paid is subject to tax relief)
you start to redeem immediately
total overall costs in 30 years higher than similar linear variant
With a linear based mortgage loan your initial monthly costs will surpass the monthly costs of a similar annuity based type of loan. The height of the monthly installments decrease in time, contrary to an annuity based loan.
The linear monthly redemption cost component is fixed during the loan, hence your interest cost component will decrease due to continuous decrease in “open balance”.
Total overall costs of a linear loan are cheaper than compared to a similar annuity based mortgage loan. .
Summarized you will find the main characteristics of a linear based loan below
decreasing monthly cost level due to linear construction of loan
montly interest cost component decrease whereas redemption cost component stays equal in height
hence; gross and net cost level decreases due to the linear character of the loan
initial monthly cost level higher than similar annuity based variant, but decreasing in time
total integral costs of loan in time lower than similar annuity based loan