Current mortgage rate: tax deduction
You will probably have noticed the rising mortgage rate in 2022 in the Netherlands. Central Dutch banks are raising interest rates to resist continued high inflation. “We see a more than threefold increase in mortgage rates compared to early 2022,” said mortgage advisor Alex Moeskops of A&H Finance. As a result, fewer and fewer people are able to finance their dream house. A small relief is the mortgage interest deduction: a tax benefit for homeowners where they are allowed to deduct the mortgage rate from their taxable income.
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We are located at the same address as the mortgage advisers of A&H Finance. They are happy to help you with your mortgage application and calculating your monthly costs; we can help with the tax matters that come with this. Fill in our contact form or call us at +31(0)20-2170120 to discuss your options.
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Effects of rising mortgage rate
Now that the current mortgage rate has skyrocketed, you can get a lower mortgage with the same income. Unfortunately, Alex also notices this with his customers: “higher interest rates have major consequences for mortgage applications; this applies to both the monthly costs and the lending capacity”.
Rising monthly costs
To get a good idea of the rising monthly costs, Alex, mortgage advisor at A&H Finance, provides insight into the mortgage rate. From January 2022, the mortgage rate for a standard (non-NHG) mortgage application for a 10-year annuity mortgage has increased from 1.51% to 4.95% in November 2022 (ABN AMRO).
The consequences are big for the monthly costs. For the first month (no repayment yet), the gross mortgage rate (before mortgage interest deduction) increases by 228% on a mortgage of €100,000: from €125.83 to €412.50. So a significant increase!
Please note: this calculation applies to the first month after the start of the mortgage. Over the course of the year, you will repay, so the monthly interest payment will also decrease. “These high-interest rates not only mean that the monthly costs rise, but also that repayments are made less quickly at the beginning of the term. In the current situation (with an annuity mortgage), the interest component comprises more than three-quarters of the monthly payment”, says Alex. If you would like more insight into the rising monthly costs and repayments? Then we refer you to the mortgage advisers of A&H Finance; they are happy to help you clarify this.
Transfer mortgage rate to a new home
For people who buy their next home, it is often cheaper to transfer the interest conditions of their current mortgage to the new home. “In this way, you do not lose the lower fixed interest rates, and you only have to take out the excess that you want to finance at the current higher interest rates,” says Alex.
Lower lending capacity
Because the monthly costs are rising, it is a logical consequence that you can lend less money with the same salary. So people can simply bid less on a home. Please note: it is wise to map out your financial situation regularly as both lending capacity and monthly costs can change.
|Income €50,000||Income €90,000|
|Lending capacity 1 Jan 2022||€240,000||€520,000|
|Lending capacity 1 Nov 2022||€206,000||€435,000|
Are there only downsides to rising mortgage rates?
Fortunately, the answer is no; there are not only disadvantages to a high mortgage rate. First of all, a higher interest rate also means more tax benefits (mortgage interest deduction). “You also see that house prices are declining and that the housing market is less overheated due to rising interest rates”, said Alex. This means that you have to outbid less often and can often buy the house for a lower price.
Mortgage interest deduction
Yes, the mortgage interest deduction is a bright spot in the rising mortgage interest. You may deduct the mortgage interest from your taxable box 1 income, as a result of which the tax to be paid is reduced. Recently, the mortgage interest rate has been so low that the mortgage interest deduction did not make much of a difference. But the high mortgage interest rates make this deductible item increasingly important.
What is the mortgage interest deduction?
Previously, the amount of the mortgage interest deduction depended on the amount of your income. Did your income fall into the second tax bracket? Then the mortgage interest was deductible at a higher amount. In recent years, this has been gradually equalized. From 2023, the mortgage interest deduction will be the same for every income, namely 37.05%.
Earlier in this article, we talked about the gross mortgage interest (before the mortgage interest deduction). If you want to know what you actually pay in interest, look at the net mortgage interest (after the mortgage interest deduction). If we use the same example with the interest rate of 4.95% on a $100,000 mortgage, this amounts to the following for the first month (no repayment yet):
|Before mortgage interest deduction||After mortgage interest deduction|
|Interest rate Nov. 2022 (4.95%)||€412.50||€259.67|
|Interest rate Jan. 2022 (1.51%)||€125.83||€79.21|
Bought a house? Monthly mortgage interest refund
If you are employed and have a mortgage on your home, there is a good chance that you will get some money back when you file your income tax return. In this case, you can apply for a provisional tax assessment. With inflation, rising gas prices, and petrol prices, it can be nice to get a monthly refund! This is possible with the help of the provisional tax return.
Please note: the provisional tax return is an estimation. If you are wrong, you still have to pay extra when filing the income tax return. Therefore, estimate your situation a little less beneficial, then you don’t take the risk. We are happy to help you submit the provisional tax return, please contact us.
Housing, mortgage & taxes at one address
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Do you have questions about the mortgage interest rate or mortgage interest deduction? Or other questions about housing, mortgages and/or taxes? Then you’ve come to the right place! At one address (Amsterdamseweg 71, Amstelveen) you will find a tax advisor (TaxSavers), mortgage advisor (A&H Finance), sales and purchase broker! Contact us using the details below.
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