Annuity Mortgage

What is an annuity mortgage?

An annuity mortgage is a type of mortgage in which you pay the same amount in gross payments every month.

There is, however, a difference between interest and principal payments. At the beginning, you pay more interest and less principal. Over the course of the loan term, this changes, and a larger portion of your monthly payment goes toward principal, while you pay less interest.

You'll notice this in your net monthly expenses.

Key Features

Consistent Monthly Payments

Fixed gross monthly payments every month.

Mortgage Interest Deduction

You are eligible for a mortgage interest deduction if you use the money for your own home or to improve your own home

Monthly expenses are rising

Net monthly payments increase over the term of the loan

Suitable for first-time buyers

Who might find an annuity appealing?

Appetizers

You want transparent gross monthly expenses and clarity about your monthly housing budget.

Buyers with lower upfront costs

In the beginning, you often want lower monthly payments than with a linear repayment plan.

People with stable or growing incomes

Keep in mind that your net monthly expenses may increase in the future.

Tax Benefits

You want to take full advantage of interest deductions and lower overall costs.

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Frequently Asked Questions About Annuity Mortgages

1What is an annuity mortgage?

An annuity mortgage is a type of mortgage in which you pay the same gross amount each month during the fixed-rate period. At first, this amount consists mainly of interest, and later it consists increasingly of principal.

2Why might my net monthly payments increase later?

Because you pay less interest over time, the amount you can deduct often decreases. As a result, your net monthly payments may increase, even if your gross monthly payment remains the same.

3What is the difference between this and a linear mortgage?

With a linear repayment plan, you pay off the same amount each month, and your gross monthly payments usually decrease more quickly. With an annuity repayment plan, your gross monthly payments remain more consistent, and the payments are often lower at the beginning.

4Can I make extra payments on an annuity mortgage?

That’s often possible, but each lender has different terms and conditions and penalty-free limits. We’d be happy to help you determine what makes the most sense in your situation.