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Lynn and I have spent the best part of the last
month or so looking for a home. We came here with the intention of
renting but everyone said that we had to buy because of the terrific
tax breaks and we thought that was probably true. With minor
variations, the tax breaks, in principle, are the similar to what
they are in the U.S. That is, you get to take the mortgage interest
as a deduction. However, the way you collect the tax break is
totally different. In the U.S. you pay your mortgage every month and
at tax time you report how much interest you paid and adjust your
income accordingly. Not here! You pay your mortgage every month and
every month you get a payment from the government for the amount of
tax credit your mortgage generates. Mortgages are, therefore, quoted
both in the gross amount (the amount you pay the bank), and the net
amount (the previous amount less what the government sent you).
Since the government money comes every month, it’s easy to offset it
against the monthly mortgage as opposed to the once a year method in
the U.S.
But there is something very different about
mortgages here, something that smacks my American sensibilities
upside the head. First, housing here is enormously expensive. But
mortgages, relatively speaking, are not. I will ignore exchange
rates here because for this discussion we are not crossing borders
and I will assume that dollars and euros are the same. For what you
pay monthly for a $250,000 home in the U.S. you could get a home
here for €500,000 counting the tax benefit. "Holy moly," thought I,
"that’s amazing! How can they do that??" But somewhere the piper has
to be paid and this is the catch. In the U.S. at the end of the 30
year mortgage period, you own the house free and clear. It’s yours,
baby, because you owe zero. You get the title. You can live rent
free (except for property tax) forever. Imagine then, the shock of
hearing, using these nice round numbers, that a person who buys a
home here for €500,000 puts zero down, needs a mortgage of about
€550,000 for closing costs, taxes, fees, and other assorted junk,
and then, at the end of 30 years, still owes €400,000. If one
actually lives there for 30 years, they then continue to pay only
the interest on the €400,000, never paying it off. At the loan’s
conclusion in 30 years, interest is no longer deductible. There is
another option by which you will owe the whole €550,000 after 30
years but will have put money into an annuity to offset that.
I’m no financial analyst or wizard, so if you’re
thinking of buying a home in The Netherlands, don’t take this as the
gospel. It’s only my own understanding after a few weeks of going
through the process. I did ask an analyst/wizard from the real
estate company why anyone would be happy paying a mortgage for 30
years and still owe almost 80% of the value at its conclusion. He
was a young guy and said that young guys like him think that after
30 years, because the monthly payments will be less (because they no
longer pay any principle) even though it will last forever, they
will still be able to afford the reduced monthly payments. If they
live there less than the 30 years, they will be able to pay it off
when they sell. The problem is, though, that you have to live there
for quite a while until you could sell the house for what is still
owed on the mortgage. If the market is good, that time can be three
to five years. If it’s bad, that time can be more.
This last point came hitting us in the face like
a wet fish. We’ve been cautioned that the market isn’t great at the
moment. Lynn’s contract is for five years although we are obligated
for only three. We don’t really know how long we’ll be here, could
be three, could be five, could be more. Since that’s the case,
taking on an enormous debt and not being able to pay it off at the
time we leave is an unpleasant prospect. We could conceivably make a
few bucks (eurobucks?) if things are good but we could lose a whole
lot more if they’re not. Another thing is that the homes we’ve
looked at to buy have been on the market for six months or a year.
When, if, it’s time to go, leaving the country with an unsold house
is also an unpleasant thought. It’s a crapshoot and we think that
maybe we shouldn’t play.
At this fortuitous moment, the housing gods
descended upon us just like they did in Montgomeryville. Lynn’s job
is to bring people to The Netherlands for IKEA. A man in town who
owns several shops on the same street and several apartments above
the shops wrote to IKEA and said that he has two apartments to rent.
The letter was forwarded to Lynn so that she could see if these
would be suitable for IKEA to lease for people coming into town for
extended stays. She read the descriptions, called home, and said
that we have to meet this guy after work. It turns out that one of
the apartments is the one he and his family live in. Two of his
three kids are leaving home and he, his wife and remaining daughter
are going to a smaller apartment. This place is slightly larger than
our house in Montgomeryville, it’s on a street that’s a pedestrian
shopping street, meaning no traffic, it has a rooftop terrace, it
has underground parking (two blocks away but who cares – we won’t be
using the car very often, we haven’t even claimed it yet from
customs), and the rent is less than we would have paid in mortgage
even after the tax break and taking into account all utilities and
use taxes. Sounds like a winner all around. The only downside is
that it won’t be available until July which means we’re stuck here
in this hotel-like atmosphere until then, but that’s the price we
have to pay.
So we’re in like Flynn. Or here, we’re in like
Van Wijk. It doesn’t have to rhyme. |
