Each year, on average, one Belgian in five buys a second home. Are you also considering investing your money in real estate? Then it may be more interesting to take out a mortgage loan instead of financing the property with savings or investments.

Lots of interest in second homes

There is currently a rush on second homes, both in Belgium and abroad. There are several reasons for this. First, Belgians are born with a brick in their stomach and owning their own vacation home is a dream for many. In recent years, the love of real estate has been fueled by low savings bond yields and expo instability. As a result, investors are more inclined to invest in something tangible that offers more security, such as a second home. A “kot” (student room) for the children, a vacation home to rent out, a weekend home to have a good time yourself or an extra garage: Belgians consider all of these to be safe and profitable investments.

Financing a second home

Real estate prices continue to rise, especially in our own country (where over 80% of Belgians buy their second home). So take plenty of time to consider how you will finance the purchase. You can use your savings, sell investments or take out a mortgage loan.

The most interesting option is to take out a mortgage loan, and here’s why:

• It is better to keep your savings as a buffer for unforeseen expenses or renovations, especially if you will soon own not one but two homes.
• It is also better not to use your investments to finance the second home. Investments are for the long term. If you get out early with your invested capital, your expected return will be a lot lower.

Mortgage loan: advantages

Besides preserving your savings reserve and the potential return on your investments, a mortgage loan has other advantages:

• Spreading the cost of purchase
• Advantageous interest rates
• Tax advantages:
• Capital repayments and debt balance insurance premium can provide a 30% reduction for long-term savings on up to €2,130 (depending on your income). This only applies if your loan for your main home is paid off.
• Interest on a mortgage loan can be fully deducted from property income, leading to a tax saving on the highest bracket of your overall income. Real estate income is determined by: o the rental income of persons or companies carrying out their professional activities in the property o the cadastral income for homes that are not rented out or are rented to physical persons who use the home for private purposes.

Debt balance insurance not a must

With any mortgage loan, you can purchase debt balance insurance. With this, your next of kin will not have to continue paying off the loan should you pass away. It is not an obligation and is not always necessary for a second home. It all depends on your own situation and wishes. Do you choose a loan with a long term and/or a high amount? Then it is advisable to take out debt balance insurance to minimize the risk to your family members.

An important factor is your age. The older you are, the higher the premium you have to pay. That premium enters the tax basket, along with other benefits such as deductible interest (see above). With a high premium, you quickly reach the maximum amount you can contribute for tax purposes. So it’s good to weigh the costs and benefits. With a second home (i.e., if there is already a family home), the second property can be sold to further pay off the outstanding loan. Any rental income may also be used.

Thinking about buying a second home and have questions about financing? We welcome you to attend one of our expos, or contact us for more info.