I kinda forgot about this, but wanted to write about it today as it was a topic of interest to me in the past few months. Erwin has tried a few times to explain it to me unsuccessfully, but this morning it seems it finally got through. And now, I wonder if it's normal to pay a mortgage in the following manner. It seems that in Holland (where we have our loan), that's one normal way to do it...but everywhere else???

Anyway, when we bought our house, we applied for a loan for the amount of the house plus a bit more to do some renovations that we had to do before it could even be habitable. When the bank officer came to our house, we paid for an extra insurance that pays for our home should anything happen to Erwin...considering he's the bread-winner in our family, that would be necessary if I were left as a widow. The mortage we got is a 25 year one and what we now pay monthly covers the interest. Nothing over the interest...at the end of 25 years, we'll still owe the complete cost of the house. In the meantime, we have to re-negotiate our mortage after 10 years. Maybe the rates will drop, maybe they'll be higher, maybe we will choose to go with another bank...doesn't matter..a.t that time if we choose to go with another bank, we'll ahve to pay the full loan off...and get a new one with another provider...or continue paying the interest on our current loan at the interest rate that's offered at the 10-year mark.

Now, how are we going to pay off this loan at the end of the 25 years??? Well, we invested in another company that we pay a couple hundred euro in the month to invest our money. They put our money into stocks/bonds/CD's...anything that is a low risk and will hopefully give us a good return on our money at the end of our 25 year mortage period. This sounds like a bit of a gamble to me...if at the end of 25 years, our investments are short of the money we've given out, how are we going to pay off our loan on the house??? The contract we have with the investment company we are working with plays this investment game at a low risk level according to our wishes. We have no input about how they invest our money, but trust them to bring us back a good return at the end of 25 years. Hmmm...so, I'm finding it all a bit exciting now. It's sorta like playing the lottery and hoping that you hit...and at the end of 25 years, we'd well better have made a good return on our investments, else I may be forced out of house and home...talk about an adrenaline rush! Go Goudse Go! Make my cash into millions (well, at least 101,000 PLEASE!)!!!

But, is this a normal way to pay off a mortgage? I've never bought a house in America, so I dunno if that's done or not? But it seems a bit chancey...even if it's much more exciting than paying a bunch of extra we don't have every month...

1 comment:

tlawwife said...

We have a traditional loan which is like a car loan or any other. Each month we pay and a certain amount goes to principal and the rest to interest. Ours is a set amount of interest. Some people have an adjustable rate interest which can change each year as the rates go up and down. There are some people who have interest only loans hoping that when they have to start paying the principal they will have more money. This kind scares me. I have never heard of having an interest only with an insurance on the side to save money for the last payment. Sounds interesting. I think I like knowing after 30 years or however many if I do it earlier the house is mine.