Residual debt when selling your house … now what?
Selling a home does not always yield a profit. It may also happen that the seller has to agree to a sale price that is lower than the outstanding mortgage. Then you have a residual debt. A residual debt that must be paid off.
Co-financing in new mortgage
If you immediately buy another house after the sale, you take out a new mortgage. In some cases, it is possible to co-finance the residual debt in the new mortgage. That is usually the best choice. The costs for the mortgage are already incurred, and the mortgage interest is lower than the interest on consumer credit.
Take out a loan for residual debt
If there is no new mortgage, or if it proves impossible to co-finance the residual debt, consumer credit remains. You can choose between the main types of a personal loan or revolving credit. With a personal loan, everything is fixed (monthly amount, interest and term), revolving credit is more flexible.
Interest deductible on residual debt
The interest you pay on the loan for your residual debt is tax-deductible for a maximum of 15 years. A temporary scheme has been introduced for this that applies to residual debts that arose between October 28, 2012, and January 1, 2018. Normally, the mortgage interest deduction only applies to loans that are used to buy, renovate or improve the owner-occupied home. The residual debt does not fall under this: after all, the house has been sold. This temporary scheme has been introduced to promote the flow of the housing market.
Personal loan or revolving credit?
The most obvious loan for a residual debt is the personal loan. Then you have a clear repayment plan and you know exactly where you stand. Revolving credit is also an option for residual debt. Since there is no redemption requirement for the tax deduction of interest, it is your own responsibility whether you pay off or not. With a revolving credit is repaid, but you can limit that by setting the monthly term as low as possible.