Tax deductible mortgage interest: all you need to know
Do you own your own home with a mortgage? If so, it is highly likely that you can deduct the mortgage interest from your income on your annual tax return. In The Netherlands, this is called the hypotheekrenteaftrek (translated: mortgage interest deduction). In most cases, it represents an amount that will save you some money. Discover how the mortgage interest deduction works exactly, and whether you will benefit from it.
What is mortgage interest deduction?
The mortgage interest deduction is a tax benefit for anyone who has bought a property. As a homeowner, you also pay mortgage interest every month, in addition to the repayment of your mortgage debt. You can deduct this interest on your annual tax return: the mortgage interest deduction. As a result, your taxable income will lower, meaning you’ll need to pay less income tax.
How does mortgage interest deduction work?
The amount you have paid in mortgage interest over a whole year can be deducted from your gross annual salary. Any mortgage interest deduction will depend on your mortgage:
- You’ve taken out a mortgage for the first time on or after 1 January 2013
If this is the case, then you’re entitled to a maximum of 30 years of mortgage interest deduction. Your loan must be paid off using either a linear or annuity construction, after 30 years. With an annuity mortgage, you pay more mortgage interest during the first few years than with a linear mortgage. That may sound negative, but paying more interest also means you can deduct more on your tax return. - You took out a mortgage before 1 January 2013
In those instances, you are also entitled to a maximum of 30 years of mortgage interest deduction, valid from the moment the mortgage is taken out. The difference is you are not obliged to repay the full amount. Did you already have a mortgage in place before 1 January 2001? If so, the 30-year term started on 1 January 2001.
Calculating mortgage deduction: an example
Let’s say the mortgage and WOZ (asset value) figure of your house is € 300,000. At an interest rate of 2%, this means an annual mortgage interest rate of € 6,000.
Your notional rental value or eigenwoningforfait is the tax you pay for owning your own home. This is an additional tax rate on top of your income, and will be 0.45% of the WOZ value in 2022. In this example, this is €1,350.*
And suppose your income is € 65,000 gross per year. To calculate your taxable income, you subtract your mortgage interest from this and add your notional rental value back to this. In this example, your taxable income is therefore: € 65,000 – € 6,000 + € 1,350 = € 60,350
Your employer has (if all is well) withheld income tax, and has not taken into account the fact that you have your own home.
The amount on which you have paid too much income tax is € 65,000 – € 60,350 = € 4,650.
You will receive a percentage back on this. How much that is, depends on the income bracket in which you pay tax:
| Tax bracket 1: | Tax bracket 2: |
| Gross income per year up to €69,398 (2022) | Gross income per year from €69,398 (2022) |
| Mortgage interest deduction: 37.03% | Mortgage interest deduction: 40% |
Please note: as of 2023 the maximum amount will be reduced to 37% for all tax brackets
In this example, the amount that you will receive back from the tax authorities (in 2022) is € 4,650 x 37.03% = € 1,721.89.
Do you have a tax partner? Then you can choose how to divide this on your tax return.
* Is your WOZ value above €1,110,000? Then the notional rental value is €4,995 (0.45% x €1,110,000) + 2.35% of the WOZ value above €1,110,000 (in 2022).
Monthly or annual mortgage interest deduction
The amount you receive through the mortgage interest deduction is paid in one installment on your account annually after you have filed your tax return. You can switch this to a monthly payment. We call this a voorlopige aanslag (provisional tax assessment) or voorlopige teruggaaf (provisional tax refund). You can apply for this at the tax authorities for the current or coming year.
Interest-only mortgages and interest-rate mortgages
Did you take out an interest-only mortgage before 1 January 2013? If so, you fall under a transitional tax law, the so-called overgangsrecht, meaning you can still benefit from mortgage interest deduction. Good to know: if you increase your old interest-only mortgage, the transitional law will no longer apply to the new part of your mortgage. Your old interest-only mortgage will still be tax-deductible, and you are therefore not entitled to mortgage interest deduction.
Contact your mortgage advisor
Have you got any questions about the mortgage interest deduction? Feel free to ask your Viisi mortgage advisor. If you don’t have an advisor yet, then schedule an appointment. We’ll be happy to help you.