Is the penalty mortgage deductible and how does that work exactly?

Transferring your mortgage to another mortgage sometimes results in a nice saving in interest or better conditions. But before you take advantage of this saving, you pay various costs for the transfer. When transferring a mortgage, are there any costs that you may deduct from your taxable income? For example, is the penalty interest deductible? You can read about it in the article below.

Deductible costs transfer mortgage

Deductible costs transfer mortgage

A large part of the costs that you incur for transferring your mortgage is tax deductible if you move. The costs below fall under the deductible costs when transferring your mortgage:

  • Penalty interest on the old mortgage.
  • Closing costs of the new mortgage.
  • Notary fees and registration fees for the mortgage deed.
  • Cost of applying for National Mortgage Guarantee (NHG).
  • Appraisal costs.
  • Construction interest.

Note: The penalty interest is tax deductible once in the year that the penalty interest arises. But if you raise the mortgage to finance the penalty interest, the interest on this part of the mortgage is not eligible for the mortgage interest deduction.

Penalty interest deductible 2019 – How does it work?

Penalty interest deductible 2019 - How does it work?

You may deduct the one-off deductible costs from your taxable income in box 1 in the year in which the costs arise. You then pay on a lower income tax.

If you choose to finance these costs in your mortgage, the interest that you pay on these costs is also tax deductible. This simply falls under the mortgage interest deduction that applies to your entire mortgage. The penalty interest is an exception to this. If you co-finance this amount in the mortgage, no interest deduction applies to the interest on this amount.

However, the government limits the possibility to co-finance costs in the mortgage. In 2012 you were allowed to take out a mortgage of 106 percent of the purchase price of the home. You could co-finance additional costs in the extra 6 percent. From January 2018 this is only 100 percent. The costs for refinancing your mortgage can therefore no longer be financed and can no longer be deducted.


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