In 2018 I was lucky enough to buy the apartment I now live in and love. Like pretty much everybody else I had to borrow money from the bank. I knew enough back then, or at least I did the research I needed, but I’ve come to learn more along the way which helps me manage my loan today.
1 – What does a home loan, or boliglån look like?
It’s a good feeling to own a home and pay it monthly instead of “wasting money” on a property you’ll never own, aka paying rent.
Well, this is only partially true. I do pay for my home every month, but I also pay the bank every month. And in the beginning, you actually pay more to the bank than to yourself. The bank agreed to lend you money, not from the kindness of their heart because their money is a product you pay for.
So in every monthly payment, there are two parts: the repayment of the debt (Norwegian: avdrag) in itself, and the interests (renter). It goes without saying that the lower the interest rate, the cheapest the loan.
Note that taxes might also be considered part of the loan or mortgage in certain countries. In Norway they are not, but it is worth noting that you get deducted 22% on the interests you pay every year.
2 – Annuity vs. linear loan
Back in 2018, the bank automatically offered me an annuity type of loan, which has turned out to be the best option for me. In case it’s not for you, here is a quick overview of what the annuity and linear types of mortgages are.
- Annuity loan or annuitetslån: You pay the same amount to the bank every month. Note that this amount may vary over time as the interest rate goes up (like it has recently) or down. From this monthly payment, the bank will take what you owe them in interest that month, and what is left after is what will actually repay the debt.
In the beginning, because you owe more, the proportion of interest in your monthly payment will be high. It will decrease over time, together with what’s left of your debt. - Linear loan or serielån: With this loan type, you pay the same amount every month towards repaying your debt. You pay interest in addition to that amount, which means you pay a lot more at the beginning, which can be difficult when you’ve just spent all your savings on buying a home.
This is most likely the main reason people choose annuity loans, that and the fact that you have the same amount to pay month to month.
However, in the long run, an annuity loan will cost you more than a linear loan, because your debt will not decrease as fast, and the remaining of your debt is what interests are calculated based on from month to month.
3 – Keep it short if you can
A shorter mortgage period will cost you less money. However, I personally set my monthly payment to be the minimum amount possible, aka choosing the most expensive option.
The reason for this is that I don’t want to live from month to month, with a knife to my throat once the mortgage is paid. I also invest some of the “extra” money in products that earn me more than what my loan costs (more on that in a future article). That being said, I have no intention to be paying my mortgage for a total of 30 years, so once in a while, I make an extra downpayment (ekstra nedbetaling). I will still pay the same amount the next month, but for a little less long, which is a way of saving money. Note that with some banks, the mortgage period or nedbetalingstid will automatically go down, while with others, like DNB for example, the period will stay the same but the amount will go down. In that case you need to specify that you want to “korte ned nedbetalingstid“, shorten the mortgage period.
I hope any of this helped.
