New mortgage rules in 2014 - tax and legal consequences
The government changed the rules for mortgages, so fewer people get into financial trouble due to their mortgage.
Mortgage deduction in the 4th tax bracket
As of 2014, the maximum tax rate at which mortgage interest can be deducted decreases by 0.5 % per year. The proceeds will be returned via an extension of the third bracket of the income tax. In 2014, the rate for deductible expenses related to the main residence is therefore 51.5% (instead of 52% in 2013).
Temporarily higher gift tax exemption for costs of your home
It has been made easier to use a gift for the purchase , redemption of outstanding debt and mortgage or renovation of your home. The exemption in the gift tax is increased to 100,000 euros until January 1, 2015. The restriction that it must be a gift from a parent to a child between 18 and 40 years is also lapsed. This means that everyone may receive up to € 100,000 tax free from a family member or a third party as long as the money is invested in the home or outstanding mortgage.
Maximum mortgage depends on property value
You can take out a mortgage in 2014 up to 104 % of the value of your home (including 2% transfer tax) . This is called the Loan-to-Value. Loan-to -Value is the ratio between the amount of the loan and the value of the home.
2018: maximum mortgage 100% of the property value
Until 2018, the government gradually decreases the Loan-to -Value to 100% (including transfer tax). This means that from 2018 you can’t get a mortgage which is higher than the value of your house. The government is doing this step by step to ease the pressure on starters and give homebuyers time to save. A higher loan up to a Loan-to-Value of 106 % remains possible for energy-saving investments such as insulation, energy efficient windows and doors and solar water heaters.
Mortgage interest deduction only with full repayment
Since January 1, 2013 you will only be able to deduct the mortgage interest if you pay off your mortgage entirely during the whole period and at least based on annuity. That means that every month you pay a fixed amount which consists of interest and capital repayment. The rule applies only to new mortgages and not to existing ( partial) interest-only mortgages. The maximum term during which you can deduct the interest remains 30 years.
Sometimes, the monthly full repayments are (temporarily) too high. For those situations, you may take out a so called combination mortgage. The combination mortgage consists of two mortgage loans. The first loan must be paid off completely in 30 years based on annuity. Additionally, you can close a second loan which you use to pay (part of) the redemption. That second loan may eventually exceed 50% of the initial loan. The interest for this second loan does not qualify for mortgage deduction.
Limit amount National Mortgage Guarantee (NHG) temporarily increased
The limit for buying a property with the National Mortgage Guarantee (NHG) was temporarily increased in 2009 from € 265,000 to € 350,000. Since 2012, the temporary increase is gradually reduced:
July 1, 2012: € 320,000;
July 1, 2013: € 290,000;
July 1, 2014: € 265,000.
Mortgage conditions for starters eased
The government has eased the mortgage conditions for starters if they expect an increase in income. Starters who expect an increase in salary within a few months or years, can get a higher mortgage. This measure took effect on January 1, 2013.
Deducting interest on outstanding debt
Do you sell your home at a loss? Since 2013 you can deduct the interest and costs for an outstanding debt up to 10 years. This is a temporary measure. The government will thus accommodate homeowners who keep a residual debt on the sale of their home.
The measure applies to residual liabilities incurred between October 29, 2012 and December 31, 2017. In those 10 years, you do not need to repay the loan. After 10 years, the interest and costs are not deductible anymore. The scheme is also available for homeowners who rent a property after selling their home.
Residual liabilities under the National Mortgage Guarantee
As of January 1, 2014, homeowners can, after they sold their home, finance an outstanding debt into a new mortgage with National Mortgage Guarantee (NHG). This rule applies to residual debts arising from the sale of a property that is financed with NHG. The condition is that the costs of the new house and the remaining debt remain below the actual limit of the NHG. The amount of the outstanding debt that exceeds the limit of the NHG may be financed by the mortgage lenders outside the NHG .
Relocation scheme mortgage
The maximum period for retention of mortgage interest deduction for the former home which is up for sale is 3 years . That term applies to the tax year 2014. Is the property put up for sale in 2011? Then you are still entitled to the mortgage interest deduction in 2014. A property that was bought in 2011 with the intention to use it as your home in 2014 can be considered your main residence in 2014 for which you can deduct the mortgage interest.
For taxpayers who bought their home in 2012 or 2013 or put it up for sale, the normal (not extended) scheme is applicable again. For them, the maximum period for retention of the mortgage when selling or buying the own home is 2 years . They can deduct the mortgage interest therefore until December 31, 2014 or December 31, 2015.
Mortgage interest deduction for former house after temporary rental
Until the end of 2014, the mortgage deduction may be claimed again for the former home which is put up for sale after a period of temporary rental. The mortgage can be deducted up to the remaining term of the relocation scheme.