Whew, some people did feel that at the beginning of this year. Mortgage interest is slowly being phased out, which means less refund each month (or once a year). But what exactly is it and why is it actually being phased out? That’s why we wrote this article for you, where we dig deeper into the question, “mortgage interest deduction: what’s going to happen with this?”
Your home as an asset
The idea of mortgage interest rates is more than 100 years old. As early as 1893, the mortgage interest deduction was introduced. Because it was the reasoning: with your house you build wealth and therefore is a source of income. And as with other income, you may deduct the expenses you incur to obtain that income. The expense you incur is mortgage interest, so you can deduct it from your taxable income.
Want to read more about mortgages? Then check out this page of other mortgage-related articles!
Home ownership as a social standpoint
In the 1990s, most political parties agreed, because home ownership had to be encouraged. There were then numerous studies that showed that owning homes had a positive effect in several areas, including socially. Think better livability in the neighborhood and fewer moves that have a beneficial impact on residents. Everyone should have the opportunity to own a home, so the mortgage interest deduction was subsumed under the label of “encouraging home ownership. Meanwhile, those livability factors are being critically examined again, as is the mortgage interest deduction.
Times are changing
Big headlines in the paper in 2017 as mortgage interest deduction is phased out. All political parties agreed, this has become a millstone around our necks. While home ownership was relatively small in the beginning, it soon began to grow and high-income earners in particular saw larger amounts coming in each month. In addition, people could afford more when buying a home, housing debt rose and the market became less accessible to first-time buyers.
For a time, the VVD stuck to the position “stay away from the mortgage interest deduction,” but they couldn’t escape the fact that the deduction was putting a heavy strain on state coffers. In addition, total mortgage debt increased, and let’s not forget that the EU looked at this construction with disdain. Why does the Netherlands subsidize homeowners?
In 2017 the time came and an agreement was reached, the mortgage interest deduction will be phased out and according to the following schedule.
What might the reduction look like?
2018: 0.5 percentage point reduction to 49.5 percent
2019: reduction of 0.5 to 49 percent
2020: reduction by 3 to 46 percent
2021: reduction by 3 to 43 percent
2022: reduction by 3 to 40 percent
2023: reduction by 3 to 37 percent
And now?
There is nothing in the current coalition agreement about the mortgage interest deduction, which probably means no change in the phasing out of this deduction. Although Brussels is knocking firmly at the door, because for extra support from Brussels, member states are supposed to clean up weaknesses in the economy, and then the mortgage interest deduction comes up again.
However, the cabinet does indicate that the so-called “jubelton” is going to disappear, on the other hand, they want to look at other ways to accommodate starters.
Furthermore, you can take advantage of the mortgage interest deduction for 30 years, after which this arrangement will expire for you. And since 2013, it has been mandatory to repay if you want to take advantage of the mortgage interest deduction. If you have already taken out an installment-free mortgage before 2013 from which you get an interest deduction, that will remain the case. But if you take out an interest-only mortgage after 2013, you are not entitled to mortgage interest deductions.
Consideration
As a homeowner, it is nice to be able to take advantage of the mortgage interest deduction, but in this housing shortage, is it still okay to widen the gap between the “have’s” and “have not’s” with a subsidy?
These are issues they have been pondering in The Hague for years, with the hot breath of Brussels breathing down their necks.
One thing is certain, the last word on this is far from being spoken, and the possibility of this deduction being phased out further is on the table.
Sources and interesting articles:
Want to read more about mortgage interest deductions? Then read this article on RTL news. Or this one. And this is an interesting article on the effect of home ownership on livability.
