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Interest-Only Mortgages

Navigating Risks and Strategies for Borrowers and Lenders

Interest-Only Mortgages Under the AFM's Lens

The Dutch Authority for the Financial Markets (AFM) has long emphasized the risks associated with interest-only mortgages. As a financial regulator, AFM has called upon mortgage lenders to actively inform and guide customers who have (partially) interest-only mortgages, ensuring they are well-aware of the potential risks and available options.

Risks Highlighted by the AFM for Interest-Only Mortgage Holders

Customers with interest-only mortgages may face significant risks, primarily due to a lack of contractual stipulation regarding the repayment of the principal. AFM has identified key concerns:

  1. Affordability Risk: The risk of not being able to afford the current mortgage, especially post-retirement or due to changes in mortgage interest deductions.
  2. Refinancing Challenges: Upon maturity, refinancing can be challenging due to changes in house values, loan-to-value ratios, and affordability.
  3. Residual Debt Risk: If the house is sold, the sale proceeds might not cover the outstanding mortgage, leading to residual debt.

AFM's Expectations from Mortgage Providers

Mortgage providers are expected to ensure customers understand their mortgage situations and future affordability. This includes:

  • Providing comprehensive information about interest-only mortgages.
  • Assisting customers in understanding the actual risks and solutions.
  • Encouraging customers to take proactive steps to mitigate risks.
  • Regularly monitoring customers' situations and maintaining contact throughout the mortgage term.

Addressing the Inflow of Risky Mortgages

An essential aspect of the AFM's approach is limiting the influx of new risky interest-only mortgages. This involves reviewing and adjusting credit underwriting policies to mitigate future risks.

Projective Group's Support for Mortgage Providers

Projective Group offers assistance to mortgage providers in developing policies, action plans, and management processes to address the risks in their client portfolios. This includes customer information collection, policy implementation, and ensuring ongoing compliance with the intended policy objectives.


1. What is an interest-only mortgage?

An interest-only mortgage is a loan where the borrower pays only the interest on the principal balance, with the full amount of the principal due at the end of the mortgage term.

2. What are the risks associated with interest-only mortgages?

Key risks include the potential inability to repay the mortgage at the end, resulting in affordability issues or a residual debt if the property is sold.

3. What does the AFM advise mortgage providers regarding these mortgages?

The AFM advises mortgage providers to educate customers about the risks, offer solutions, encourage proactive risk mitigation, and monitor these loans consistently.

4. What should borrowers with interest-only mortgages do?

Borrowers should assess their ability to repay the mortgage, consider options like saving or switching to a repayment mortgage, and stay informed about their financial situation.

5. How can mortgage providers mitigate the risks of interest-only mortgages? Providers can mitigate risks by informing and advising customers, regularly reviewing customer circumstances, and adjusting underwriting policies to limit risky new loans.