Mortgage interest relief has been an important limitation since the introduction. Homeowners must pay a kind of tax for their living enjoyment: the notional rental value. The level of the notional rental value depends on the value of the home.
Relaying provides pure savings
The mortgage interest deduction is therefore reduced by the notional rental value. As soon as the lump sum becomes higher than the interest paid, the homeowner gets a deduction due to little or no home acquisition debt. This deduction ensures that the interest deduction amounts to exactly 0 euros. The flat rate is therefore only a deduction threshold, never a real addition to the income.
Example: you pay € 2400 mortgage interest per year. The WOZ value of the home is € 400,000. The notional rental value is 0.75% and therefore amounts to € 3000. Without the mortgage interest relief you would have to pay € 600 tax, but in order to prevent this you will receive a deductible of € 600.
Fall mortgage interest
Mortgage rates have fallen sharply in recent years. Homeowners who therefore pay little interest benefit. Their mortgage payments go down when they pay off. They do not lose any mortgage interest relief, because they had been swept away by the notional rental value. Repayment therefore provides a pure saving.
If these homeowners sell their homes, they have more surplus value thanks to redemption. If they then live in a cheaper house, they will transfer a nice amount for their pension. Redemption is therefore an ideal solution for seniors who want to retire earlier or want to spend more from the AOW age.
Benefit from high income
Those who have a high income will benefit even more from repaying the mortgage. People who pay 52% tax each year must add a part of the paid mortgage interest to their income. In 2017 this is 2%, but this will be 0.5% more each year and eventually it will rise to 14%. The more these homeowners pay off, the lower the amount that they have to add. It is not permitted to withhold the interest paid in the declaration.
Are there disadvantages to repay? Actually there are no drawbacks to pay off, but you have to keep a reserve for future expenses for maintenance and renovation. Extending the mortgage later is expensive, given the additional costs for mortgage advice, mediation and new mortgage deed. Keeping enough money behind you to pay for the maintenance of the house from your own pocket is smart.
Exploratory mortgage interview
In addition to repaying a mortgage, it is also smart to look at the level of interest you have to pay. Does the fixed-rate period of your mortgage expire within 3 years and do you still want to benefit from the low mortgage interest rates? Or do you just want to know your options? Consumind Finance arranges an introductory mortgage interview with an independent mortgage adviser in your area.