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The hypocrisy of the Dutch Mortgage Interest deduction

Monday, November 8, 2010 · Category Economy · comments 0


The Netherlands is the last country in Europe where we can still deduct a part of our mortgage interest. Over the years there have been many discussions gradually stopping this legal tax cut for house owners.

How does it work?

If you have a mortgage on your house, you usually pay interest and relief. These are the gross expenses. The netto expenses depend on the percentage of the interest you can deduct from your taxes. Most people and especially financial advisers calculate the height of your mortgage based on the netto-expenses. A very dangerous way, since you will be depended on the taxcut which weakens ones personal financial position.

Example of tax cut on mortgage interest

Here is where the hypocrasy comes in. If you earn say E 7.000 a month bruto, in the Dutch progressive tax system, part of this income falls in the highest tax rate table (52%). Say you pay E 8000 on mortgage interest every year. Your tax cut will be: E 8.000,- x 52% = E 4.160,00. If however your income is less and your maximum tax rate table is 42%, your tax cut for the same amount of interest would only be E 3.360,-

Who benefits most?

Clearly the highest incomes benefit the most of this tax rule. Not only are the tax returns much higher with a higher income, with a higher income you are also eligible for a much higher mortgage. If you would have a mortgage loan of E 2 mln. you can still deduct the same % over the interest paid. Let's say the interest rate would be 5% than your tax cut on the interest over the E 2 mln. mortgage loan would be 52%: E 52.000,00, which is much more than an average income.

What happens if it's changed

Some experts calculate a 20% decrease in housing prices if the mortgage interest tax cut would be abolished. Average income households would suffer a rise in monthly expenses of about E 270,00 while a 3x average income household could see a rise in monthly expenses of nearly E 1.000 a month.


With our new government we can probably say goodbye to any proposals for a change in the mortgage interest tax cut system.


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