An American Couple in Delft
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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.


2008 Rick Wexler   last updated February 21, 2008