Mortgage interest relief has been high on the agenda of the Dutch political parties for years. Will it be phased out, how soon until it disappears and what are the consequences? As long as you don’t own a house, this discussion probably doesn’t interest you that much. Now that you are a (first-time) buyer yourself, you probably want to know all about it. This article will tell you all the ins and outs, so start reading now!
Mortgage loan interest
When buying a house, you probably take out a mortgage. You pay interest to the mortgage lender on this loan. We, therefore, call this mortgage loan interest. In many cases, the term of your mortgage is 30 years. Because of this long term, the amount of interest you pay is considerable.
What is mortgage interest relief?
The mortgage interest you pay makes buying a house a lot more expensive. In order to make buying attractive for you, the government introduced the mortgage interest relief scheme. This is a tax facility to make buying a property more attractive.
How does this tax facility work?
Assuming you file your annual tax return, you state your income from work and home in box 1. You may also list a number of deductible items in this box, including mortgage interest and commuting expenses. These deductions reduce your taxable income and with that, the tax you pay on your income. When filing your tax return, you can reclaim the mortgage interest once a year. If you earn a fixed income per month, it may be interesting to receive a provisional refund each month.
You earn € 35,000 gross per year and you own your own home. In order to buy the house, you took out a mortgage of € 180,000 at a mortgage interest rate of 2.8%. The value of the house under the Valuation of Immovable Property Act (WOZ) is € 200,000. Because you own your own home, you must add the notional rental value (0.7% of the WOZ value) to your income. You may then deduct the mortgage interest from this amount. In this example, your taxable income is € 35,245 – € 5,040 = € 30,205. The amount on which you pay tax is, therefore, € 4,795 lower.
Are you always entitled to mortgage interest relief?
Unfortunately not. Your house and mortgage do have to meet certain conditions. These have been tightened considerably in recent years. We will set out these conditions in a clear overview below:
- Your mortgage is intended for the purchase, improvement or maintenance of your home. This house must be your main residence in the Netherlands.
- Are you taking out a new mortgage? In that case, you are obliged to fully repay it within 30 years.
- Did you buy the house before 2013 and did you also take out the mortgage before this time? In that case, you are not obliged to repay the entire mortgage.
- If you sell the house with surplus value and you take out a new mortgage within 3 years, you will be obliged to invest the surplus value in your new home. If you don’t, the right to mortgage interest relief on this part of the mortgage lapses.
- You can deduct mortgage interest from your income for up to 30 years.