Do you have an investment mortgage or are you wondering if you can still close it? We have listed interesting information about investment mortgages for you. Reviewing them costs you at most 5 – 10 minutes. Then you are able to take some important decisions yourself. But only do so with permission from your mortgage adviser. Because the investment mortgage is a relatively complicated form of mortgage. Small changes in a situation can easily lead to major changes.
Explanation about the investment mortgage
It is important to note that the term investment mortgage is used for different mortgage types. You will find on this page for which mortgage forms the loan term is used. In 2006, for example, there was a lot of commotion about Dutch investment insurance.
These insurances were mandatory for holders of investment mortgages to close, and these turned out to be very complex and expensive. With an investment mortgage, the holder does not have to repay anything during the term. With the proceeds of an investment, the mortgage amount can (partially) be repaid at the end of the term.
Disadvantages mortgage investment:
- You run a lot of investment risk.
- It is therefore uncertain whether you are building sufficient capital to be able to redeem.
- Rigid tax rules at KEW and BEW.
- Expensive term life insurance (term life insurance can therefore be better separated).
- High redemption costs (!).
- With both old and new investment mortgages, no higher mortgage amount can be applied for.
Whether or not a capital return tax?
An older ‘investment mortgage’ can still fall under the fiscal transitional arrangements for repaying a home acquisition debt. Have you taken out this mortgage before 1 January 2013? In that case, you do not have to pay a ‘capital gain tax’ on the assets you accrue or have accrued.
Benefit from mortgage interest relief with old investment mortgage
Do you have an ‘old’ investment mortgage? Have you applied for this before 1-1-2013? In that case, your current investment mortgage can still fall under the transitional arrangement for repaying a home acquisition debt. You can simply benefit from the current mortgage interest deduction. However, the level of this deduction for all mortgage types is gradually reduced to a maximum of 37% in 2023.
Annually less interest deduction for all mortgages
From 2020, you can deduct 3 percent less mortgage interest from the income tax every three consecutive years. This will cost a lot of money, especially for higher incomes. Note: Does your investment policy pay out money? As a holder of an investment mortgage, you will immediately lose the right to interest deduction for an amount equal to that benefit.
For new investment mortgages (concluded after 1-1-2013) it is not possible to apply mortgage interest relief. On the website of the tax authorities you can read more about the ‘Act on the tax treatment of the owner-occupied home’.
Different forms of investment mortgages
As we have already written, there are several forms of mortgage loans that go through life as an investment mortgage. These are loans with investments in a so called capital insurance policy and loans with a pawned securities deposit or settlement account. In any case, the various investment mortgages make use of forms of investing. They differ from each other in the ways in which investments are made.
Ways to invest in?
There are several types of investment mortgages that can be invested in different ways as follows:
- Securities mortgage: investment in single securities through a securities deposit;
- Bank savings mortgage: investment in investment funds by means of an investment account;
- Investment policy mortgage: Invest in investment funds through a unit-linked insurance policy.
New mortgage form with investing no longer possible
Do you want to take out a new mortgage in an investment form? You can still close it but you no longer have a right to mortgage interest deduction. According to the new lending standards that the government has set up, with a new mortgage you are only entitled to mortgage interest relief if the loan is repaid in an annuity or linear manner during the term.
With all forms of mortgage where you accrue capital with investing, you only pay off the mortgage with the investment capital at the end of the term.
Exchanging existing investment mortgage
Do you have an old investment mortgage and did you take out this before the new mortgage interest deduction rules started? You can then transfer this existing investment mortgage to another provider within the mortgage interest deduction rules. You can transfer the mortgage to another home or to another bank.
However, you can not increase your interest-only mortgage. If you want to take a current mortgage loan to a new home, you can apply for a small linear or annuity mortgage for an increase in the mortgage amount. You can apply mortgage interest deduction for 30 years on that new mortgage amount.
Pay off your investment mortgage
Investment mortgages are rather risky products. After all, it is never certain when you can fully repay the investment mortgage. This is mainly due to the investment risk that you take. The return on the investments is very uncertain. The accumulated capital of the unit-linked insurance, the securities deposit or the investment account can not be sufficient at the end of the term.
It is therefore possible that a residual debt will remain at the end of the term. To limit this risk as much as possible, it is wise to occasionally pay off a small part of the mortgage amount. Not only do you pay less interest, the chances of you remaining with a residual debt are also less.
Despite our skepticism regarding capital and repayments, there is also a chance of a higher capital than you need for repayment. So let’s end this article with a positive note: the benefits!
5 benefits of investment mortgage:
- There is a possibility that you will build up more capital than you need for repayment.
- You can accrue tax-free at BEW or KEW investments.
- With old mortgages, you will continue to be entitled to the maximum mortgage interest deduction.
- With this form of mortgage on the basis of investing, life insurance coverage or insurance is included.
- You can possibly transfer existing investments to another bank when you transfer.