Financial issues are quite complicated for many consumers. Not every Dutch person has an economics or maths knot. Yet some knowledge of money matters is actually indispensable. Whoever submits his tax return will undoubtedly agree.
Especially for homeowners and for consumers who are considering buying a (first) home it is therefore important that attention is paid to a subject that homeowners will be confronted with anyway. That subject is the mortgage interest. And we already reveal it: the ‘notorious’ mortgage interest deduction is also discussed.
Mortgage interest: what is it?
Mortgage interest in itself is still fairly uncluttered and also understandable for people who are not financial specialists. This interest can basically be compared fairly well with the ‘normal’ interest as we know it with a personal loan or revolving credit.
Where it becomes a bit more complicated is at the point where the different tariff groups come in. With a mortgage it can be very good that the amount of your mortgage is as high as that of your neighbor while you have to pay more interest (or less) than he does.
Mortgage interest and rate groups
The different rate groups therefore influence the level of the mortgage interest rate. But what the hell is that? This is largely due to the risk of a certain mortgage. Here too, mortgage interest can easily be compared with other types of loans: the greater the risk, the higher the interest.
With regard to a mortgage, the risk revolves around the relationship between the home value and the mortgage amount. This ratio is also referred to as the ‘Loan to Value’ (LTV). The higher the LTV, the higher the interest rate of the mortgage. The LTV in combination with the fixed-rate period (variable is also possible) determines in which rate group you end up.
Mortgage interest deduction
When it comes to mortgage interest, the mortgage interest deduction is usually also included in the same breath. How does that work anyway? The mortgage interest deduction is a scheme that makes it more favorable to buy your own house. This works as follows.
You may deduct the interest that you pay from your income on your tax return (Box 1). Of course, your income will be lower thanks to the deduction, which means that you will have to pay less tax to the government.
That it is therefore favorable to buy your own house with this scheme is a fact. Incidentally, that the government collects less tax (and therefore often discusses the mortgage interest deduction).