If you have a residual debt, you can choose to finance it. But what is a residual debt and how do you calculate it? Discover our tips on financing your residual debt and how you can prevent it in the future.
What is a residual debt?
Unfortunately, it often happens that we cannot sell our house at a profit. This creates a residual debt. In the Netherlands, 1 in 6 people has a residual debt, with an average value of 35,000 euros. The residual debt is therefore the negative balance that remains when you have sold your house. With the sale, it was not possible to overlap the debt amount of the mortgage with the amount that you had for your home.
Residual debt financing
Residual debt financing is becoming increasingly popular and more and more lenders are going to offer this. In this way, financing a new home becomes possible, despite the fact that the old home has not yet been repaid. There are two different ways in which you can finance the residual debt.
Withdrawal in new mortgage
The moment you take out a mortgage for your new home, you can choose to automatically finance the remaining debt in the new mortgage.
In addition, you have the option of financing the residual debt through a revolving credit or a personal loan. Of which people opt for a personal loan in most cases. Are you not buying a new home but are you going to rent a home? Even then you can finance the remaining debt with a loan.
Best choice: personal loan
The best choice in your case will of course depend on your personal situation. But in general we prefer to take out a personal loan. The advantage of taking out a personal loan compared to a revolving credit or mortgage is that you know exactly where you stand. You borrow the amount you need to finance the residual debt on a one-off basis. You then pay a fixed monthly amount in repayment. In addition to knowing every month how much you have to pay, you also know exactly when you have fully repaid the loan
Calculate residual debt
How do you calculate the amount of the residual debt? You do this by taking two factors into account: the selling price of the home and the amount of the corresponding mortgage. The residual debt is the difference between the selling price of the home and the (remaining) mortgage debt.
Suppose you have a townhouse with a mortgage of € 300,000. You then sell it at a loss for € 250,000. Then the remaining debt is: 300,000 – 250,000 = € 50,000.
How long to pay in residual debt?
The term of a loan that you take out for the residual debt depends on three factors.
1. Amount of the residual debt
The amount of the residual debt is different in every situation. This depends on the loss that you suffer on the sale of your property.
2. Monthly payment of the loan
Of course it is nice to have repaid the loan as quickly as possible. You can choose to set the monthly amount as high as possible. Please note that it must remain feasible to repay this amount every month. You want to prevent you from incurring a payment arrears on the loan because you have set the monthly burden too high.
3. Amount of the loan interest
If you opt for a personal loan, you pay a fixed amount each month on the outstanding debt. Part of this is interest payment, the amount that remains is repayment. The higher the interest, the less money remains each month to pay off the residual debt. In this way, a higher loan interest rate ensures that the repayment of the residual debt takes longer.
Remission of residual debt
If you have purchased a house that falls under the National Mortgage Guarantee (NHG), you may be eligible for cancellation of the remaining debt. This is only possible if you cannot finance the residual debt in a new mortgage or take out a loan for it. You are also only eligible for the cancellation if you had to sell your house and you have done everything to limit the loss.
Interest deduction residual debt financing is canceled
From 2018 the interest deduction for financing the residual debt has lapsed. This makes moving with a residual debt more expensive. A call has been made for the retention of the interest deduction, but unfortunately this has definitively lapsed. It was a temporary crisis measure. Only the residual debts that arose between 28 October 2012 and 31 December 2017 are eligible for interest deduction.
Prevent residual debt
Of course you do not have a lot of influence on the selling price of your house. However, the amount of the residual debt can be steered yourself. You do this by paying extra during the term of the mortgage. With these extra repayments you reduce the mortgage debt.
It may be that the extra repayment may not always be free of charge, or that there may be a maximum amount per year. In that case you can choose to put the money aside and when you sell the house you can reduce the residual debt or even be able to pay with it. Always keep an eye on the changes in the regulations concerning this topic. Politicians sometimes want to implement legislative changes that may also apply to your situation. If you don’t feel like investigating this yourself, you can always ask a consultant for it. They are aware of all the latest legislative changes.
Tips for financing residual debt
- Ask a real estate agent to paint a concrete picture of the expected return on your home. This way you can prepare yourself for any residual debt.
- Repay residual debt with savings. You may have chosen to save some extras when there was room for that. You can do that money now
to finance the residual debt.
- Pay residual debt from a loan. By taking out a revolving credit or personal loan, you do not have to use your own savings directly to finance the residual debt. By paying off the loan every month, you still pay off the remaining debt in installments.
Arrange residual debt financing on time
It is extremely important to have the financing of the residual debt on time. Arrange this before your home is transferred to the new owner at the notary. At that time, the entire mortgage, including residual debt, must be repaid. If the money for this is not yet available, then the property cannot be transferred either. This has financial consequences for you as a seller.