Deduction exemption
– a guide for those who wonder what it means.
Eiendomsfinans, as experts in mortgages for private individuals, sheds light on grace periods. This guide is designed for loan applicants and homeowners with minimal knowledge of the subject. Let’s go into the details of the term Interest-only period.
The difference between interest-only and installment loans
- Tax exemption:
- With a grace period, the borrower has the option to pay only the interest on the loan for a specific period, usually up to 5 years at a time.
- During this period, repayment of the actual loan amount (principal) is deferred, leaving the borrower to pay interest only.
- A grace period gives the borrower financial flexibility for a period of time, which can be particularly useful when facing other major expenses. This may be due to high interest rates, periods between buying and selling a home or during the start-up phase.
- Loans with deductions:
- In an installment loan, the borrower pays both interest and a portion of the loan amount (principal) each month.
- The monthly payment consists of an interest portion and an installment portion. The interest portion goes to the bank as payment for borrowing money, while the repayment portion reduces the total loan amount. The breakdown of this is different for annuity loans and serial loans, which you can read more about here .
- Over time, installment loans lead to a gradual decrease in the outstanding debt, and the borrower owns a larger share of the asset (e.g. a home) at the end of the loan period.
In sum, interest-only loans provide short-term financial relief in the form of lower monthly payments on the loan, while installment loans lead to long-term repayment of the loan amount itself. The choice between interest-only and installment loans depends on the borrower’s financial situation and preferences.
Get help applying for a mortgage with a grace period
Eiendomsfinans specializes in handling the unique borrowing needs of individuals. Whether you’re a first-time buyer or an experienced homeowner, our experts ensure a personalized approach to your financial needs.
Understanding the fundamental difference between interest-only and installment loans is crucial to making good decisions. Interest-only, or interest-only payments, allow borrowers to defer repayment of their loan for a set period of time. On the other hand, installment loans involve regular payments of both interest and principal, ensuring a gradual reduction of the loan amount.
- Customized solutions: Eiendomsfinans writes loan applications tailored to individual financial situations.
- Flexible terms: Interest-only terms mean flexibility in the payment structure to accommodate varied financial circumstances.
- Eiendomsfinans expertise: Trust our specialists to guide you through the choice of mortgage type.
FAQ
Now let’s answer some common questions that loan applicants and homeowners may have regarding mortgages and grace periods.
The mortgage must not exceed 60% of the value of the home. In other words, if you have a home with a value of NOK 5 million, you can apply for a grace period if your loan is less than NOK 3 million.
Interest-only mortgages offer the option to pay interest only for a set period of time, allowing borrowers to reduce their monthly mortgage costs for a period of time.
It varies and depends on individual agreements. Normally, you can apply for up to 5 years. After this period has expired, you can apply for a new period if you wish. The bank will then reassess the situation. Here, they will be concerned that the value of the property has not fallen significantly, and that the customer has paid on time during the grace period.
It is equally applicable to all types of homebuyers, but most often first-time buyers do not have the 40% equity required to qualify.
Yes, Eiendomsfinans offers solutions for existing homeowners who want to refinance or switch to an interest-only mortgage.
The size of your loan in relation to the value of your home affects your options. If you have a loan of less than 60 percent of the value of your home, it is normally easy to get a grace period. However, if you have a loan of more than 60 percent of the value of your home, it will be more challenging to get this approved.
Yes, you can make installments or payments on your loan at any time if you have a floating-rate loan. If you have a fixed-rate loan, you must stick to the original payment plan for the entire period you have fixed the interest rate.
Summary
Interest-only loans should only be used to ease financial obligations in cases where reducing consumption is not enough. It is a more expensive option than a repayment loan, where you pay a little less on the interest portion for each month you pay off the loan portion.