Mortgage in Luxembourg: conditions, term and how to compare offers

What the bank checks before lending to you

Your creditworthiness. Before signing, the bank must carry out a thorough assessment of your ability to repay, based on your income, your expenses and your existing loans. It can only grant the loan if this assessment shows that you're likely to be able to repay it (law of 23 December 2016 (ouvre dans un nouvel onglet)). It must tell you clearly which documents to provide and by when. If it turns you down because of a database it consulted, it must tell you so, free of charge.

No debt ratio set by law. The percentage of your income that the bank accepts going on monthly repayments is its own rule, and it varies from one bank to another. To estimate your amount: our borrowing capacity page.

Your down payment. CSSF Regulation 20-08 caps the share of the property that loans can finance (CSSF (ouvre dans un nouvel onglet)):

The value used is the lower of the price and an independent expert's valuation (CSSF FAQ (ouvre dans un nouvel onglet)). These caps don't cover purchase costs. If your savings are low, read our page on down payment and loans without a down payment: until 31 March 2027, the State guarantee can count as a down payment in this calculation.

Fixed or variable rate: what the ESIS must show you

Fixed rate: your monthly repayment doesn't change during the fixed period. Variable rate: it follows the markets. Average rates for the latest published month, by fixation period, are on our mortgage rates page.

If your rate can change (unless it's fixed for at least 5 years and then renegotiated: the ESIS then gives an illustrative APRC for that fixed period), the law requires the bank to show you, in the ESIS, an additional APRC illustrating what happens if the rate rises sharply. If the rate has no cap, it must warn you that the total cost of your credit may change (law of 23 December 2016 (ouvre dans un nouvel onglet)).

What the term tells you. The longer you spread your loan, the lower your monthly repayment, but the more interest you pay in total. Example (trigger calculation): €300,000 at 4.01% costs about €1,820 a month over 20 years, and about €1,585 over 25 years; the interest goes from about €137,000 to about €176,000.

Reading and comparing two offers

Put the two ESIS sheets side by side and compare them line by line:

Why the APRC? It adds up the interest, commissions, taxes, fees known to the bank, the property valuation if it's required, and compulsory insurance premiums. Notary fees and registration duties on the purchase are excluded, as are charges payable if you don't comply with the contract (law of 23 December 2016 (ouvre dans un nouvel onglet)).

Example (fictitious offers, trigger calculation): €350,000 over 25 years. Offer A at 3.60%, offer B at 3.80%.

A 0.2-point gap means about €38 a month and €11,400 over the term. But if offer A requires more expensive insurance or higher arrangement fees, the gap can shrink, or even reverse: the APRC is what decides.

Comparing 4 or 5 banks takes time. A broker compares the banks for you and negotiates with them: have your loan compared before you sign.

What a broker brings, and what the law requires of them

A broker (the law says “mortgage credit intermediary”) puts your file together, presents it to several banks and compares their answers. For you, that's time saved and a view of offers you wouldn't have asked for.

Before working for you, they must give you in writing (law of 23 December 2016 (ouvre dans un nouvel onglet)):

• their identity and the register they're listed in (they need an authorisation from the minister responsible for the financial centre);
• whether they work with one or several banks, or exclusively, and which ones;
• whether they give you advice;
• any fees they charge, and the commissions the banks pay them.

On request, they give you the level of commission paid by each bank. They can only call themselves “independent” if they look at a sufficient number of offers on the market and aren't paid by the banks for that advice. The bank alone decides whether to lend to you. More details: our mortgage broker page.

To get started, have your loan compared with the form just above.

Mortgage life insurance

The bank can require insurance linked to your loan, such as mortgage life insurance (assurance solde restant dû). But you don't have to take it out with the bank: it must accept a policy from another company if the cover is equivalent (law of 23 December 2016 (ouvre dans un nouvel onglet)). Since its cost is included in the APRC when it's compulsory, get a quote for both: the bank's, and another one with the form below.

Tax side. Paid as regular premiums, it falls within the cap of €672 a year for deducting insurance premiums, increased for your spouse and your children (ACD (ouvre dans un nouvel onglet)). If you're a cross-border worker, this deduction is only open to you if you're treated as a resident. Paid as a single premium, it comes under a separate cap: €6,000 (for each of you if you're taxed jointly and both insured) plus €1,200 per child, increased by 8% per year of age over 30 at signing, with an increase of 160% at most (ACD (ouvre dans un nouvel onglet)).

Repaying earlier than planned

You can repay your loan early at any time, in full or in part. You notify the bank in writing, and it must give you the figures for the operation. The law forbids any penalty (law of 23 December 2016 (ouvre dans un nouvel onglet)).

The bank can, however, ask you for compensation, which can't exceed its financial loss. If the home has been your main residence for at least 2 years without interruption, this compensation can't exceed 6 months' interest on the capital repaid. This cap doesn't apply to the share of cumulative early repayments above €450,000.

Example (trigger calculation): you repay €50,000 of a loan at 4%. Six months' interest is €50,000 × 4% ÷ 2, so €1,000 at most.

As a couple, as a cross-border worker: what changes for your loan

As a couple. The loan of up to 100% of the property's value requires each borrower to be a first-time buyer, that is, never to have had a mortgage for a home in Luxembourg (CSSF FAQ (ouvre dans un nouvel onglet)). If one of you has already had one, it's 90%. After a separation, the partner who sold or was bought out is no longer a first-time buyer. On the tax side, if you're taxed jointly, the interest deduction cap is increased for the spouse and for each child (ACD (ouvre dans un nouvel onglet)).

Cross-border worker moving to Luxembourg. The interest subsidy and the State guarantee require a right of residence of more than 3 months in Luxembourg and registration in the national register of natural persons (Guichet.lu (ouvre dans un nouvel onglet)). Your household must also not own more than a third of another home, in Luxembourg or abroad. If you've already borrowed for a home in your country, get the bank to confirm your first-time buyer status: the CSSF definition refers to a loan for a property located in Luxembourg.

Cross-border worker buying to let. The loan is limited to 80% of the property's value (CSSF (ouvre dans un nouvel onglet)).

Every year: deducting the interest

The interest on the loan for your home is deductible from your taxable income: in full in the year your rental value is set and the following year, then up to €4,000 a year for 4 years, €3,000 for 5 years, and €2,000 after that (ACD (ouvre dans un nouvel onglet)). These amounts are increased for the spouse taxed with you and for each child. If you're a cross-border worker and the home is in your country, this interest only counts in Luxembourg if you apply to be treated as a resident (at least 90% of your taxable income in Luxembourg), and only to calculate your tax rate (ACD (ouvre dans un nouvel onglet)).